First Foundation
Annual Report 2013

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KFirst Foundation Inc. - FFWMFiled: March 25, 2014 (period: December 31, 2013)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K(Mark One) xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2013OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from toCommission file number: 000-55090 FIRST FOUNDATION INC.(Exact name of Registrant as specified in its charter) California 20-8639702(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.) 18101 Von Karman Avenue, Suite 700Irvine, CA 92612 92612(Address of principal executive offices) (Zip Code)(949) 202-4160(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NoneSecurities registered pursuant to Section 12(g) of the Act: Common Stock, par value, $.001 per share (Title of Class)Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x.Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of 15(d) of the Act. YES ¨ NO x.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 preceding12 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 90days. YES x NO ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted andposted 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 andpost such files). Yes ¨ No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of“accelerated filer and large accelerated filer” and “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ¨ Accelerated filer ¨Non-accelerated filer ¨ Smaller reporting company xIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xNo market existed for registrant’s Common Stock on either the last day of the second quarter of fiscal 2013 or the last day of fiscal 2013.As of March 21, 2014, a total of 7,733,514 shares of registrant’s Common Stock were outstanding. Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.ANNUAL REPORT ON FORM 10-KFOR THE YEAR ENDED DECEMBER 31, 2013TABLE OF CONTENTS Page No. FORWARD-LOOKING STATEMENTS ii PART I Item 1 Business 1 Item 1A Risk Factors 19 Item 1B Unresolved Staff Comments 32 Item 2 Properties 33 Item 3 Legal Proceedings 33 Item 4 Mine Safety Disclosures 33 PART II Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 34 Item 6 Selected Financial Data 36 Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 38 Item 8 Financial Statements and Supplementary Data 64 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 104 Item 9A Controls and Procedures 104 Item 9B Other Information 104 PART III Item 10 Directors and Executive Officers of the Registrant 105 Item 11 Executive Compensation 109 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 114 Item 13 Certain Relationships and Related Transactions and Director Independence 115 Item 14 Principal Accountant Fees and Services 118 PART IV Item 15 Exhibits and Financial Statements and Schedules 119 Signatures S-1 Index to Exhibits E-1 iSource: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFORWARD-LOOKING STATEMENTSIn addition to historical information, this document contains forward-looking statements (as such term is defined in Section 27A of the SecuritiesAct of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-lookingstatements are those that predict or describe future events or trends or that do not relate solely to historical matters. However, our actual results and financialperformance in the future will be affected by known and currently unknown risks, uncertainties and other factors that may cause our actual results or financialperformance in the future to differ materially from the results or financial performance that may be expressed, predicted or implied by such forward-lookingstatements. Such risks, uncertainties and other factors include, among others, those set forth below in ITEM 1A. RISK FACTORS, and readers of this report areurged to read the cautionary statements contained in that Section of this Report. In some cases, you can identify forward-looking statements by words like“may,” “will,” “should,” “could,” “believes,” “intends,” “expects,” “anticipates,” “plans,” “estimates,” “predicts,” “potential,” “project” and “continue” andsimilar expressions. Readers of this document are cautioned not to place undue reliance on any forward-looking statements, which speak only as of therespective dates on which such statements were made and which are subject to risks, uncertainties and other factors that could cause actual results and thetiming of certain events to differ materially from future results expressed or implied by such forward-looking statements.First Foundation Inc. expressly disclaims any intent or any obligation to release publicly any revisions or updates to any of the forward-lookingstatements contained in this report to reflect events or circumstances after the date of this document or the occurrence of currently unanticipated events ordevelopments or to conform such forward-looking statements to actual results or to changes in its opinions or expectations, except as may be required byapplicable law. iiSource: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPART IItem 1. BusinessOverviewUnless we state otherwise or the context otherwise requires, references in this Annual Report on Form 10-K to “we,” “our,” and “us” refer toFirst Foundation Inc., a California corporation, (or FFI or the Company) and its consolidated subsidiaries, First Foundation Advisors (or FFA) and FirstFoundation Bank (or FFB).We are a California based financial services company that provides a comprehensive platform of personalized financial services to high net-worth individuals and their families, family businesses and other affiliated organizations. We consider high net-worth individuals to be individuals with networth, excluding their primary residence, of over $1.0 million. Our integrated platform provides investment management, wealth planning, consulting, trustand banking products and services to effectively and efficiently meet the financial needs of our clients. We have also established a lending platform thatoffers loans to individuals and entities that own and operate multifamily residential and commercial real estate properties. In addition, we provide businessbanking products and services to small to moderate-sized businesses and professional firms, and consumer banking products and services to individuals andfamilies who would not be considered high net-worth. As of December 31, 2013, we had $2.59 billion of assets under management (or AUM), $1.04 billion oftotal assets, $904 million of loans and $802 million of deposits. Our investment management, wealth planning, consulting, and trust services provide us withsubstantial, fee-based, recurring revenues, such that in 2013, our non-interest income was 36% of our total revenues.Our strategy is focused on expanding our strong and stable client relationships by delivering high quality, coordinated investment management,wealth planning, consulting, trust and banking products and services. We are able to maintain a client-focused approach by recruiting and retainingexperienced and qualified staff, including highly qualified relationship managers, private bankers and financial planners.We intend to continue to grow our business by (i) cross-selling our services among our wealth management and banking clients; (ii) obtainingnew client referrals from existing clients, attorney and accountant referral sources and through referral agreements with asset custodial firms; (iii) marketingour services directly to prospective new clients; (iv) adding experienced relationship managers and private bankers who may have established clientrelationships that we can serve; (v) establishing de novo wealth management offices in select markets, both within and outside our existing market areas; and(vi) making opportunistic acquisitions of complementary businesses.As a bank holding company, we are subject to regulation and examination by the Board of Governors of the Federal Reserve System (or theFederal Reserve Board or FRB) and the Federal Reserve Bank of San Francisco (or the FRBSF) under delegated authority from the FRB. As an FederalDeposit Insurance Corporation (or FDIC) insured, California state chartered bank, FFB is subject to regulation and examination by the FDIC and theCalifornia Department of Business Oversight (or the DBO). FFB also is a member of the Federal Home Loan Bank of San Francisco (or “FHLB”), whichprovides it with a source of funds in the form of short-term and long-term borrowings. FFA is a registered investment adviser under the Investment AdvisersAct of 1940, or Investment Advisers Act, and is subject to regulation by the Securities and Exchange Commission, or SEC, under that Act.Through FFA and FFB, we offer a comprehensive platform of personalized financial services to high net-worth individuals and their families,family businesses and other affiliated organizations. Our integrated platform provides investment management, wealth planning, consulting, trust andbanking products and services to effectively and efficiently meet the financial needs of our clients. Our broad range of financial product and services are moreconsistent with those offered by larger financial institutions, while our high level of personalized service, accessibility and responsiveness to our clients aremore typical of the services offered by boutique investment management firms and community banks. We believe this combination of an integrated platformof comprehensive financial services and products and personalized and responsive service differentiates us from many of our competitors and has contributedto the growth of our client base and our business. 1Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsOverview of our Investment Advisory and Wealth Management BusinessFFA is a fee-based investment adviser which provides investment advisory services primarily to high net-worth individuals, their families andtheir family businesses, and other affiliated organizations. FFA strives to provide its clients with a high level of personalized service by its staff ofexperienced relationship managers. As of December 31, 2013, FFA had total $2.59 billion of AUM. FFA’s operations comprise the investment management,wealth planning and consulting segment of our business.Overview of Our Banking BusinessFFB is engaged in private and commercial banking, offering a broad range of personal and business banking products and services and trustservices to its clients. Its private banking services include a variety of deposit products, including personal checking, savings and money market deposits andcertificates of deposit, single family real estate loans, and consumer loans. FFB also provides the convenience of online and other personal banking servicesto its clients. FFB’s business banking products and services include multifamily and commercial real estate loans, commercial term loans and lines of credit,transaction and other deposit accounts, online banking and enhanced business services. FFB has also established a lending platform that offers loans toindividuals and entities who own and operate multifamily residential and commercial real estate properties. In addition, FFB provides its products andservices to individuals and families who would not be considered high net-worth, small to moderate sized businesses and professional firms. At December 31,2013, FFB had $1.04 billion of total assets, $904 million of loans and $802 million of deposits. FFB’s operations comprise the trust and banking segment ofour business.Relationship Managers and Private BankersOur operating strategy has been to build strong and stable long-term client relationships, one at a time, by delivering high quality, coordinatedinvestment management, wealth planning, consulting, trust and banking products and services. The success of this strategy is largely attributable to ourexperienced and high quality client relationship managers and private bankers. The primary role of our relationship managers and private bankers, inaddition to attracting new clients, is to develop and maintain a strong relationship with their clients and to coordinate the services we provide to their clients.We have experienced low turnover in our client service personnel and we believe we can continue to attract and retain experienced and client-focusedrelationship managers and private bankers. At December 31, 2013, we employed 16 relationship managers and 20 private bankers.Wealth Management Products and ServicesFFA provides fee-based investment advisory services and wealth management and consulting services primarily for high net-worth individualsand their families, family businesses and other affiliated organizations (including public and closely-held corporations, family foundations and privatecharitable organizations). FFA provides high net-worth clients with personalized services designed to enable them to reach their personal and financial goalsand by coordinating FFA’s investment advisory and wealth management services with risk management and estate and tax planning services provided byoutside service providers, for which FFA does not receive commissions or referral fees. FFA’s clients benefit from certain cost efficiencies available toinstitutional managers, such as block trading, access to institutionally priced no-load mutual funds, ability to seek competitive bid/ask pricing for bonds, lowtransaction costs and investment management fees charged as a percentage of the assets managed, with tiered pricing for larger accounts.FFA’s investment management team strives to create diversified investment portfolios for its clients that are individually designed, monitoredand adjusted based on the discipline of fundamental investment analysis. FFA focuses on creating investment portfolios that are commensurate with a client’sobjectives, risk preference and time horizon, using traditional investments such as individual stocks and bonds and mutual funds. FFA also providescomprehensive and ongoing advice and coordination regarding estate planning, retirement planning, charitable and business ownership issues, and issuesfaced by executives of publicly-traded companies.AUM at FFA has grown at a compound annual growth rate of 19.2% over the four year period ending December 31, 2013. Changes in our AUMreflects additions from new clients, the gains or losses recognized from investment results, additional funds received from existing clients, withdrawals offunds by clients, and terminations. During the 3 year period ending December 31, 2013, additions from new clients and net gains from investment resultswere 71% and 29%, respectively, of the total of additions from new clients and net gains from investment results. 2Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFFA does not provide custodial services for its clients. Instead, client investment accounts are maintained under custodial arrangements withlarge, well established brokerage firms, either directly or through FFB. However, FFA advises its clients that they are not obligated to use those services andthat they are free to select securities brokerage firms and custodial service providers of their own choosing. FFA has entered into referral agreements withcertain of the asset custodial firms that provide custodial services to our clients. Under these arrangements, the asset custodial firms provide referrals ofprospective new clients whose increase in wealth warrants a more personalized and expansive breadth of financial services that we are able to provide inexchange for a fee. This fee is either a percentage of the fees we charge to the client or a percentage of the AUM of the client. The asset custodial firms areentitled to continue to receive these fees for as long as we continue to provide services to the referral client. These referral agreements do not require theclient to maintain their assets at the custodial firm and are fully disclosed to the client prior to our providing services to them.FFA also provides wealth management services, consisting of financial, investment and economic advisory and related services, to high-net-worth individuals and their families, family businesses, and other affiliated organizations (including public and closely-held corporations, familyfoundations and private charitable organizations). Those services include education, instruction and consultation on financial planning and managementmatters, and Internet-based data processing administrative support services involving the processing and transmission of financial and economic dataprimarily for charitable organizations.Banking Products and ServicesThrough FFB, we offer a wide range of loan products, deposit products, business and personal banking services and trust services. Our loanproducts are designed to meet the credit needs of our clients in a manner that, at the same time, enables us to effectively manage the credit and interest raterisks inherent in our lending activities. Deposits represent our principal source of funds for making loans and investments and acquiring other interest-earning assets. The yields we realize on our loans and other interest-earning assets and the interest rates we pay to attract and retain deposits are the principaldeterminants of our banking revenues. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” elsewhere in thisAnnual Report on Form 10-K.FFB also provides trust services to clients in California and Nevada. Those services, which consist primarily of the management of trust assets,complement the investment and wealth management services that FFA offers to our clients and, as a result, provide us with cross-selling opportunities.Additionally, trust service fees provide an additional source of noninterest income for us. At December 31, 2013, trust AUM totaled $341 million.Our lending activities serve the credit needs of high net-worth individuals and their businesses, owners of multifamily and commercial real estateproperties, individuals and families who would not be considered high net-worth, small to moderate size businesses and professional firms in our marketareas. As a result we offer a variety of loan products consisting of multifamily and single family residential real estate loans, commercial real estate loans,commercial term loans and lines of credit, and consumer loans. We handle all loan processing, underwriting and servicing at our administrative office inIrvine, California. 3Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe following table sets forth information regarding the types of loans that we make, by amounts and as a percentage of our total loansoutstanding at December 31: 2013 2012 (dollars in thousands) Balance % of Total Balance % of Total Outstanding principal balance: Loans secured by real estate: Residential properties: Multifamily $ 405,984 44.9% $ 367,412 49.4% Single family 227,096 25.2% 155,864 21.0% Total loans secured by residential properties 633,080 70.1% 523,276 70.4% Commercial properties 154,982 17.2% 132,217 17.8% Land 3,794 0.4% 7,575 1.0% Total real estate loans 791,856 87.7% 663,068 89.2% Commercial and industrial loans 93,255 10.3% 67,920 9.1% Consumer loans 18,484 2.0% 12,585 1.7% Total loans $903,595 100.0% $743,573 100.0% Residential Mortgage Loans – Multi-family: We make multi-family residential mortgage loans for terms up to 30 years primarily for propertieslocated in Southern California. These loans generally are adjustable rate loans with interest rates tied to a variety of independent indexes; although in somecases these loans have fixed interest rates for periods ranging from 3 to 7 years and adjust thereafter based on an applicable index. These loans generally haveinterest rate floors, payment caps, and prepayment penalties. The loans are underwritten based on a variety of underwriting criteria, including an evaluationof the character and creditworthiness of the borrower and guarantors, loan-to-value and debt service coverage ratios, borrower liquidity and credit history. Inaddition, we perform stress testing for changes in interest rates, capitalization rates and other factors and review general economic trends such as lease rates,values and absorption rates. We typically require personal guarantees from the owners of the entities to which we make such loans.Residential Mortgage Loans – Single-family: We offer single family residential mortgage loans primarily as an accommodation to our existingclients. In most cases, these take the form of non-conforming loans and FFB does not sell or securitize any of its single family residential mortgage loanoriginations. FFB does not originate loans defined as high cost by state or federal banking regulators. The majority of FFB’s single family residential loanoriginations are collateralized by first mortgages on real properties located in Southern California. These loans are generally adjustable rate loans with fixedterms ranging from 3 to 7 years terms. These loans generally have interest rate floors and payment caps. The loans are underwritten based on a variety ofunderwriting criteria, including an evaluation of the character and creditworthiness of the borrower and guarantors, loan-to-value and debt to income ratios,borrower liquidity, income verification and credit history. In addition, we perform stress testing for changes in interest rates and other factors and reviewgeneral economic trends such as market values.Commercial Real Estate Loans: Our commercial real estate loans are secured by first trust deeds on nonresidential real property. These loansgenerally are adjustable rate loans with interest rates tied to a variety of independent indexes; although in some cases these loans have fixed interest rates forperiods ranging from 3 to 7 years and adjust thereafter based on an applicable index. These loans generally have interest rate floors, payment caps, andprepayment penalties. The loans are underwritten based on a variety of underwriting criteria, including an evaluation of the character and creditworthiness ofthe borrower and guarantors, loan-to-value and debt service coverage ratios, borrower liquidity and credit history. In addition, we perform stress testing forchanges in interest rates, cap rates and other factors and review general economic trends such as lease rates, values and absorption rates. We typically requirepersonal guarantees from the owners of the entities to which we make such loans. 4Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsCommercial Loans: We offer commercial term loans and commercial lines of credit to our clients. Commercial loans generally are made tobusinesses that have demonstrated a history of profitable operations. To qualify for such loans, prospective borrowers generally must have operating cashflow sufficient to meet their obligations as they become due, and good payment histories. Commercial term loans are either fixed rate loans or adjustable rateloans with interest rates tied to a variety of independent indexes and are made for terms ranging from one to five years. Commercial lines of credit areadjustable rate loans with interest rates usually tied to the Wall Street Journal prime rate, are made for terms ranging from one to two years, and containvarious covenants, including a requirement that the borrower reduce its credit line borrowings to zero for specified time periods during the term of the line ofcredit. The loans are underwritten based on a variety of underwriting criteria, including an evaluation of the character and creditworthiness of the borrowerand guarantors, debt service coverage ratios, historical and projected client income, borrower liquidity and credit history. In addition, we perform stresstesting for changes in interest rates and other factors and review general economic trends in the client’s industry. We typically require personal guaranteesfrom the owners of the entities to which we make such loans.Consumer Loans: We offer a variety of consumer loans and credit products, including personal installment loans and lines of credit, and homeequity lines of credit designed to meet the needs of our clients. Consumer loans are either fixed rate loans or adjustable rate loans with interest rates tied to avariety of independent indexes and are made for terms ranging from one to ten years. The loans are underwritten based on a variety of underwriting criteria,including an evaluation of the character creditworthiness and credit history of the borrower and guarantors, debt to income ratios, borrower liquidity, incomeverification, and the value of any collateral securing the loan. Consumer loan collections are dependent on the borrower’s ongoing cash flows and financialstability and, as a result, generally pose higher credit risks than the other loans that we make.For all of our loan offerings, we utilize a comprehensive approach in our underwriting process. This includes the requirement that all factorsconsidered in our underwriting be appropriately documented. In our underwriting, our primary focus is always on the borrower’s ability to repay. However,because our underwriting process allows us to view the totality of the borrower’s capacity to repay, concerns or issues in one area can be compensated for byother favorable financial criteria. This personalized and detailed approach allows us to better understand and meet our clients’ lending needs.Bank Deposit ProductsWe offer a wide range of deposit products, including personal and business checking, savings accounts, interest-bearing negotiable order ofwithdrawal accounts, money market accounts and time certificates of deposit. The following table sets forth information regarding the type of deposits whichour clients maintained with us and the average interest rates on those deposits as of December 31: 2013 2012 (dollars in thousands) Amount % of Total Weighted AverageRate Amount WeightedAverageRate Demand deposits: Noninterest-bearing $ 217,782 27.1% - $ 131,827 20.3% - Interest-bearing 217,129 27.1% 0.504% 103,085 15.9% 0.558% Money market and savings 121,260 15.1% 0.499% 91,278 14.0% 0.488% Certificates of deposits 245,866 30.7% 0.606% 323,551 49.8% 0.732% Total $ 802,037 100.0% 0.398% $ 649,741 100.0% 0.522% 5Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAs of December 31, 2013, our 6 largest bank depositors accounted for, in the aggregate, 36% of our total deposits. See ITEM 1A - RISKFACTORS.Insurance ServicesThrough First Foundation Insurance Services (or FFIS), a wholly owned subsidiary of FFB, we offer life insurance products provided byunaffiliated insurance carriers from whom we collect a brokerage fee.CompetitionThe banking and investment and wealth management businesses in California and Las Vegas, Nevada, generally, and in FFI’s market areas, inparticular, are highly competitive. A relatively small number of major national and regional banks, operating over wide geographic areas, including WellsFargo, JP Morgan Chase, US Bank, Comerica, Union Bank and Bank of America, dominate the Southern California banking market. Those banks, or theiraffiliates, also offer private banking and investment and wealth management services. We also compete with large, well known private banking and wealthmanagement firms, including City National, First Republic, Northern Trust and Boston Private. Those banks and investment and wealth management firmsgenerally have much greater financial and capital resources than we do and as a result of their ability to conduct extensive advertising campaigns and theirrelatively long histories of operations in Southern California, are generally better known than us. In addition, by virtue of their greater total capitalization,the large banks have substantially higher lending limits than we do, which enables them to make much larger loans and to offer loan products that we are notable to offer to our clients.We compete with these much larger banks and investment and wealth management firms primarily on the basis of the personal and “one-on-one”service that we provide to our clients, which many of these competitors are unwilling or unable to provide, other than to their wealthiest clients, due to costsinvolved or their “one size fits all” approaches to providing financial services to their clients. We believe that our principal competitive advantage is ourability to offer our banking, trust, and investment and wealth management services through one integrated platform, enabling us to provide our clients withthe efficiencies and benefits of dealing with a cohesive group of professional advisors and banking officers working together to assist our clients to meet theirpersonal investment and financial goals. We believe that only the largest financial institutions in our area provide similar integrated platforms of productsand services, which they sometimes reserve for their wealthiest and institutional clients. In addition, while we also compete with many local and regionalbanks and numerous local and regional investment advisory and wealth management firms, we believe that only a very few of these banks offer investment orwealth management services and that a very few of these investment and wealth management firms offer banking services and, therefore, these competitors arenot able to provide such an integrated platform of comprehensive financial services to their clients. This enables us to compete effectively for clients who aredissatisfied with the level of service provided at larger financial institutions, yet are not able to receive an integrated platform of comprehensive financialservices from other regional or local financial service organizations.While we provide our clients with the convenience of technological access services, such as remote deposit capture and internet banking, wecompete primarily by providing a high level of personal service associated with our private banking focus. As a result, we do not try to compete exclusivelyon pricing. However, because we are located in a highly competitive market place and because we are seeking to grow our businesses, we attempt to maintainour pricing in line with our principal competitors.Supervision and RegulationBoth federal and state laws extensively regulate bank holding companies and banks. Such regulation is intended primarily for the protection ofdepositors and the FDIC’s deposit insurance fund and is not for the benefit of shareholders. Set forth below are summary descriptions of the material laws andregulations that affect or bear on our operations. Those summaries are not intended, and do not purport, to be complete and are qualified in their entirety byreference to the laws and regulations that are summarized below. 6Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFirst Foundation Inc.General. First Foundation Inc. is a registered bank holding company subject to regulation under the Bank Holding Company Act of 1956, asamended (the “Holding Company Act”). Pursuant to that Act, we are subject to supervision and periodic examination by, and are required to file periodicreports with the FRB.As a bank holding company, we are allowed to engage, directly or indirectly, only in banking and other activities that the FRB has determined,or in the future may deem, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Business activitiesdesignated by the FRB to be closely related to banking include the provision of investment advisory, securities brokerage, insurance agency and dataprocessing services, among others.As a bank holding company, we also are required to obtain the prior approval of the FRB for the acquisition of more than 5% of the outstandingshares of any class of voting securities, or of substantially all of the assets, by merger or purchase, of (i) any bank or other bank holding company and (ii) anyother entities engaged in banking-related businesses or that provide banking-related services.Under FRB regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks andmay not conduct its operations in an unsafe or unsound manner. In addition, it is the FRB’s policy that a bank holding company, in serving as a source ofstrength to its subsidiary banks, should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods offinancial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiarybanks. For that reason, among others, the FRB requires all bank holding companies to maintain capital at or above certain prescribed levels. A bank holdingcompany’s failure to meet these requirements will generally be considered by the FRB to be an unsafe and unsound banking practice or a violation of theFRB’s regulations or both, which could lead to the imposition of restrictions on the offending bank holding company, including restrictions on its furthergrowth.Additionally, among its powers, the FRB may require any bank holding company to terminate an activity or terminate control of, or liquidate ordivest itself of, any subsidiary or affiliated company that the FRB determines constitutes a significant risk to the financial safety, soundness or stability of thebank holding company or any of its banking subsidiaries. The FRB also has the authority to regulate provisions of a bank holding company’s debt, includingauthority to impose interest ceilings and reserve requirements on such debt. Subject to certain exceptions, bank holding companies also are required to filewritten notice and obtain approval from the FRB prior to purchasing or redeeming their common stock or other equity securities. A bank holding companyand its non-banking subsidiaries also are prohibited from implementing so-called tying arrangements whereby clients may be required to use or purchaseservices or products from the bank holding company or any of its non-bank subsidiaries in order to obtain a loan or other services from any of the holdingcompany’s subsidiary banks.Because FFB is a California state chartered bank, the Company also is a bank holding company within the meaning of Section 3700 of theCalifornia Financial Code. As such, we are subject to examination by, and may be required to file reports with, the DBO.Financial Services Modernization Act. The Financial Services Modernization Act, which also is known as the Gramm-Leach-Bliley Act, wasenacted into law in 1999. The principal objectives of that Act were to establish a comprehensive framework to permit affiliations among commercial banks,insurance companies, securities and investment banking firms, and other financial service providers. Accordingly, the Act revised and expanded the BankHolding Company Act to permit a bank holding company system meeting certain specified qualifications to engage in a broader range of financial activitiesto foster greater competition among financial services companies both domestically and internationally. 7Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe Financial Services Modernization Act also contains provisions that expressly preempt and make unenforceable any state law restricting theestablishment of financial affiliations, primarily related to insurance. That Act also: • broadened the activities that may be conducted by national banks, bank subsidiaries of bank holding companies, and their financialsubsidiaries; • provided an enhanced framework for protecting the privacy of consumer information; • adopted a number of provisions related to the capitalization, membership, corporate governance, and other measures designed tomodernize the Federal Home Loan Bank system; • modified the laws governing the implementation of the Community Reinvestment Act (“CRA”), which is described in greater detailbelow; and • addressed a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of bankinginstitutions.According to current FRB regulations, activities that are financial in nature and may be engaged in by financial holding companies, throughtheir non-bank subsidiaries, include • securities underwriting, dealing and market making; • sponsoring mutual funds and investment companies; • engaging in insurance underwriting; and • engaging in merchant banking activities.Before a bank holding company may engage in any of the financial activities authorized by the Financial Services Modernization Act, it mustfile an application with its Federal Reserve Bank that confirms that it meets certain qualitative eligibility requirements established by the FRB. A bankholding company that meets those qualifications and files such an application will be designated as a “financial holding company,” in which event it willbecome entitled to affiliate with securities firms and insurance companies and engage in other activities, primarily through non-banking subsidiaries, that arefinancial in nature or are incidental or complementary to activities that are financial in nature.A bank holding company that does not qualify as a financial holding company may not engage in such financial activities. Instead, as discussedabove, it is limited to engaging in banking and such other activities that have been determined by the FRB to be closely related to banking.Privacy Provisions of the Financial Services Modernization Act. As required by the Financial Services Modernization Act, federal bankingregulators have adopted rules that limit the ability of banks and other financial institutions to disclose nonpublic information about consumers tononaffiliated third parties. Pursuant to the rules, financial institutions must provide: • initial notices to clients about their privacy policies, describing the conditions under which banks and other financial institutions maydisclose non-public personal information about their clients to non-affiliated third parties and affiliates; • annual notices of their privacy policies to current clients; and • a reasonable method for clients to “opt out” of disclosures to nonaffiliated third parties.Acquisitions of Control of Banks. The Holding Company Act and the Change in Bank Control Act of 1978, as amended, together withregulations of the FRB, require FRB approval before any person or company may acquire “control” of a bank holding company, subject to exemptions forsome transactions. Control is conclusively presumed to exist if an individual or company (i) acquires 25% or more of any class of voting securities of a bankholding company or (ii) has the direct or indirect power to direct or cause the direction of the management and policies of a bank holding company, whetherthrough ownership of voting securities, by contract or otherwise; provided that no individual will be deemed to control a bank holding company solely onaccount of being a director, officer or employee of the bank holding company. Control is presumed to exist if a person acquires 10% or more but less than25% of any class of voting securities of a bank holding company with securities registered under Section 12 of the Exchange Act or if no other person willown a greater percentage of that class of voting securities immediately after the transaction. 8Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsHowever, as a bank holding company, we must obtain the prior approval of the FRB to acquire more than five percent of the outstanding sharesof voting securities of a bank or another bank holding company.Dividends. It is the policy of FRB that bank holding companies should generally pay dividends on common stock only out of income availableover the past year, and only if prospective earnings retention is consistent with the holding company’s expected future needs for capital and liquidity and tomaintain its financial condition. It is also an FRB policy that bank holding companies should not maintain dividend levels that undermine their ability to bea source of financial strength for their banking subsidiaries. Additionally, due to the current financial and economic environment, the FRB has indicated thatbank holding companies should carefully review their dividend policies and has discouraged dividend payment ratios that are at maximum allowable levelsunless both asset quality and capital are very strong.Recent Legislation and Governmental Actions. From time to time, federal and state legislation is enacted which can affect our operations and ouroperating results by materially increasing the costs of doing business, limiting or expanding the activities in which banks and other financial institutionsmay engage, or altering the competitive balance between banks and other financial services providers.The recent economic recession and credit crisis that, among other measures, required the federal government to provide substantial financialsupport to the largest of the banks and other financial service organizations in the United States, led the U.S. Congress to adopt a number of new laws, and theU.S. Treasury Department and the federal banking regulators, including the FRB and the FDIC, to take broad actions, to address systemic risks and volatilityin the U.S. banking system. Set forth below are summaries of such recently adopted laws and regulatory actions, which are not intended to be complete andwhich are qualified in their entirety by reference to those laws and regulations.The Dodd-Frank Act: On July 21, 2010, the Dodd-Frank was signed into law. The Dodd-Frank Act significantly changes federal bankingregulation. Among other things, the Dodd-Frank Act created a new Financial Stability Oversight Council to identify systemic risks in the banking andfinancial system and gives federal regulators new authority to take control of and liquidate banking institutions and other financial firms facing the prospectof imminent failure that would create systemic risks to the U.S. financial system. The Dodd-Frank Act also created the Consumer Financial Protection Bureau(“CFPB”), which is a new independent federal regulator with broad powers and authority to administer and regulate federal consumer protection laws.Set forth below is a summary description of some of the key provisions of the Dodd-Frank Act that may affect us. The description does notpurport to be complete and is qualified in its entirety by reference to the Dodd-Frank Act itself.Imposition of New Capital Standards on Bank Holding Companies. The Dodd-Frank Act required the FRB to apply consolidated capitalrequirements to bank holding companies that are no less stringent than those currently applied to depository institutions, such as FFB. The FRB implementedthis requirement by its adoption of the new Basel III capital rules in June 2013. See “—First Foundation Bank—New Basel III Capital Rules” below.Increase in Deposit Insurance and Changes Affecting the FDIC Insurance Fund. The Dodd-Frank Act permanently increased the maximumdeposit insurance amount for banks, savings institutions and credit unions to $250,000 per depositor. Additionally, the Dodd-Frank Act eliminates thefederal statutory prohibition against the payment of interest on business checking accounts, which is likely to increase the competition for and interest thatbanks pay on such accounts. The Dodd-Frank Act also broadens the base for FDIC insurance assessments, which will now be based on the averageconsolidated total assets, less tangible equity capital, of an insured financial institution and which may result in increases in FDIC insurance assessments formany FDIC insured banks. The Dodd-Frank Act requires the FDIC to increase the reserve ratio of the Deposit Insurance Fund from 1.15% to 1.35% of insureddeposits by 2020 and eliminates the requirement that the FDIC pay dividends to insured depository institutions when the reserve ratio exceeds certainthresholds.Executive Compensation Provisions. The Dodd-Frank Act directs federal banking regulators to promulgate rules prohibiting the payment ofexcessive compensation to executives of depository institutions and their holding companies with assets in excess of $1.0 billion. 9Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsLimitations on Conversion of Bank Charters. The Dodd-Frank Act prohibits a bank or other depository institution from converting from a stateto federal charter or vice versa while it is subject to a cease and desist order or other formal enforcement action or a memorandum of understanding withrespect to a significant supervisory matter, unless the appropriate federal banking agency gives notice of the conversion to the federal or state regulatoryagency that issued the enforcement action and that agency does not object within 30 days.Interstate Banking. The Dodd-Frank Act authorizes national and state banks to establish branches in other states to the same extent as a bankchartered by that state would be permitted to branch. Previously, banks could only establish branches in other states if the host state expressly permitted out-of-state banks to establish branches in that state. Accordingly, banks will be able to enter new markets more freely.Extension of Limitations on Banking Transactions by Banks with their Affiliates. The Dodd-Frank Act applies Section 23A and Section 22(h) ofthe Federal Reserve Act (governing transactions with insiders of banks and other depository institutions) to derivative transactions, repurchase agreementsand securities lending and borrowing transactions that create credit exposure to an affiliate or an insider of a bank. Any such transactions with any affiliatesmust be fully secured. In addition, the exemption from Section 23A for transactions with financial subsidiaries has been eliminated. The Dodd-Frank Act alsoexpands the definition of affiliate for purposes of quantitative and qualitative limitations of Section 23A of the Federal Reserve Act to include mutual fundsadvised by a depository institution or any of its affiliates.Debit Card Fees. The Dodd-Frank Act provides that the amount of any interchange fee charged by a debit card issuer with respect to a debit cardtransaction must be reasonable and proportional to the cost incurred by the card issuer and requires the FRB to establish standards for reasonable andproportional fees which may take into account the costs of preventing fraud. As a result, the FRB adopted a rule, effective October 1, 2011, which limitsinterchange fees on debit card transactions to a maximum of 21 cents per transaction plus 5 basis points of the transaction amount. A debit card issuer mayrecover an additional one cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements prescribed by theFRB. Although, as a technical matter, this new limitation applies only to institutions with assets of more than $10 billion, it is expected that many smallerinstitutions will reduce their interchange fees in order to remain competitive with the larger institutions that are required to comply with this new limitation.Consumer Protection Provisions of the Dodd-Frank Act. The Dodd-Frank Act created a new, independent federal agency, called the ConsumerFinancial Protection Bureau (“CFPB”), which has been granted broad rulemaking, supervisory and enforcement powers under various federal consumerfinancial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit ReportingAct, Fair Debt Collection Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes. The CFPB hasexamination and primary enforcement authority with respect to the compliance by depository institutions with $10 billion or more in assets with federalconsumer protection laws and regulations. Smaller institutions are subject to rules promulgated by the CFPB, but continue to be examined and supervised byfederal banking regulators for consumer compliance purposes. The CFPB has authority to prevent unfair, deceptive or abusive practices in connection withthe offering of consumer financial products. The Dodd-Frank Act also (i) authorizes the CFPB to establish certain minimum standards for the origination ofresidential mortgages, including a determination of the borrower’s ability to repay, and (ii) will allow borrowers to raise certain defenses to foreclosure if theyreceive any loan other than a “qualified mortgage” as defined by the CFPB. The Dodd-Frank Act permits states to adopt consumer protection laws andstandards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliancewith both the state and federal financial consumer protection laws and regulations. 10Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsIn January 2013, the CFPB approved certain mortgage lending reform regulations impacting the Truth in Lending Act (the “TILA”) and the RealEstate Settlement Procedures Act (“RESPA”). Among other things, those reforms: • expand the population of loans that are subject to higher cost loan regulations and additional disclosures; • prohibit the payment of compensation to mortgage brokers based on certain fees or premiums, such as yield spread premiums, payable byor charged to home borrowers; • increase the regulation of mortgage servicing activities, including with respect to error resolution, forced-placement insurance and lossmitigation and collection activities; • require financial institutions to make a reasonable and good faith determination that the borrower has the ability to repay the residentialmortgage loan before it is approved for funding and provides that the failure of a financial institution to make such a determination willentitle the borrower to assert that failure as a defense to any foreclosure action on the mortgage loan; and • impose appraisal requirements for high cost loans and loans secured by first mortgage liens on residential real estate.The CFPB issued final rules for residential mortgage lending, which became effective January 10, 2014, including definitions for “qualifiedmortgages” and detailed standards by which leaders must satisfy themselves of the borrower’s ability to repay the loan and revised forms of disclosure underthe TILA and RESPA.First Foundation BankGeneral. FFB is subject to primary supervision, periodic examination and regulation by (i) the FDIC, which is its primary federal bankingregulator, and (ii) the DBO, because FFB is a California state chartered bank.Various requirements and restrictions under Federal and California banking laws affect the operations of FFB. These laws and the implementingregulations, which are promulgated by federal and state bank regulatory agencies, can determine the extent of supervisory control to which a bank will besubject by its federal and state bank regulators. These laws and regulations cover most aspects of a bank’s operations, including: • the reserves a bank must maintain against deposits and for possible loan losses and other contingencies; • the types of deposits it obtains and the interest it is permitted to pay on different types of deposit accounts; • the types of and limits on loans and investments that a bank may make; • the borrowings that a bank may incur; • the number and location of wealth banking offices that a bank may establish; • the rate at which it may grow its assets; • the acquisition and merger activities of a bank; • the amount of dividends that a bank may pay; and • the capital requirements that a bank must satisfy. 11Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsIf, as a result of an examination of a federally regulated bank, a bank’s primary federal bank regulatory agency, such as the FDIC, were todetermine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of a bank’s operations hadbecome unsatisfactory or that the bank or its management was in violation of any law or regulation, that agency has the authority to take a number ofdifferent remedial actions as it deems appropriate under the circumstances. These actions include the power: • to enjoin “unsafe or unsound” banking practices; • to require that affirmative action be taken to correct any conditions resulting from any violation or practice; • to issue an administrative order that can be judicially enforced; • to require the bank to increase its capital; • to restrict the bank’s growth; • to assess civil monetary penalties against the bank or its officers or directors; • to remove officers and directors of the bank; and • if the federal agency concludes that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate abank’s deposit insurance, which in the case of a California state chartered bank would result in revocation of its charter and require it tocease its banking operations.Additionally, under California law the DBO has many of these same remedial powers with respect to FFB.Permissible Activities and Subsidiaries. California law permits state chartered commercial banks to engage in any activity permissible fornational banks. Those permissible activities include conducting many so-called “closely related to banking” or “nonbanking” activities either directly orthrough their operating subsidiaries.Federal Home Loan Bank System. FFB is a member of the FHLB. Among other benefits, each regional Federal Home Loan Bank serves as areserve or central bank for its members within its assigned region and makes available loans or advances to its member banks. Each regional Federal HomeLoan Bank is financed primarily from the sale of consolidated obligations of the overall Federal Home Loan Bank system. As an FHLB member, FFB isrequired to own a certain amount of capital stock in the FHLB. At December 31, 2013, FFB was in compliance with the FHLB’s stock ownership requirement.Historically, the FHLB has paid dividends on its capital stock to its members.Federal Reserve Board Deposit Reserve Requirements. The FRB requires all federally-insured depository institutions to maintain reserves atspecified levels against their transaction accounts. At December 31, 2013, FFB was in compliance with these requirements.Dividends and Other Transfers of Funds. Cash dividends from FFB are one of the principal sources of cash (in addition to any cash dividendsthat might be paid to us by FFA) that is available to the Company for its operations and to fund any cash dividends that our board of directors might declarein the future. We are a legal entity separate and distinct from FFB and FFB is subject to various statutory and regulatory restrictions on its ability to pay cashdividends to us. Those restrictions would prohibit FFB, subject to certain limited exceptions, from paying cash dividends in amounts that would cause FFBto become undercapitalized. Additionally, the FDIC and the DBO have the authority to prohibit FFB from paying cash dividends, if either of those agenciesdeems the payment of dividends by FFB to be an unsafe or unsound practice.The FDIC also has established guidelines with respect to the maintenance of appropriate levels of capital by banks under its jurisdiction.Compliance with the standards set forth in those guidelines and the restrictions that are or may be imposed under the prompt corrective action provisions offederal law could limit the amount of dividends which FFB may pay. Also, until September 2014, we are required to obtain the prior approval of the FDICbefore FFB may pay any dividends. 12Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsSingle Borrower Loan Limitations. With certain limited exceptions, the maximum amount of obligations, secured or unsecured, that anyborrower (including certain related entities) may owe to a California state bank at any one time may not exceed 25% of the sum of the shareholders’ equity,allowance for loan losses, capital notes and debentures of the bank. Unsecured obligations may not exceed 15% of the sum of the shareholders’ equity,allowance for loan losses, capital notes and debentures of the bank.Restrictions on Transactions between FFB and the Company and its other Affiliates. FFB is subject to Federal Reserve Act Sections 23A and23B and FRB Regulation W, which impose restrictions on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, theCompany or any of its other subsidiaries; the purchase of, or investments in, Company stock or other Company securities, the taking of such securities ascollateral for loans; and the purchase of assets from the Company or any of its other subsidiaries. These restrictions prevent the Company and any of itssubsidiaries from borrowing from FFB unless the borrowings are secured by marketable obligations in designated amounts, and such secured loans andinvestments by FFB in the Company or any of its subsidiaries are limited, individually, to 10% of FFB’s capital and surplus (as defined by federalregulations) and, in the aggregate, for all loans made to and investments made in the Company and its other subsidiaries, to 20% of FFB’s capital and surplus.California law also imposes restrictions with respect to transactions involving the Company and any other persons that may be deemed under that law tocontrol FFB.Safety and Soundness Standards. Banking institutions may be subject to potential enforcement actions by the federal regulators for unsafe orunsound practices or for violating any law, rule, regulation, or any condition imposed in writing by its primary federal banking regulatory agency or anywritten agreement with that agency. The federal banking agencies have adopted guidelines designed to identify and address potential safety and soundnessconcerns that could, if not corrected, lead to deterioration in the quality of a bank’s assets, liquidity or capital. Those guidelines set forth operational andmanagerial standards relating to such matters as: • internal controls, information systems and internal audit systems; • risk management; • loan documentation; • credit underwriting; • asset growth; • earnings; and • compensation, fees and benefits.In addition, federal banking agencies have adopted safety and soundness guidelines with respect to asset quality. These guidelines provide sixstandards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating. Under these standards, an FDIC-insured depository institution is expected to: • conduct periodic asset quality reviews to identify problem assets, estimate the inherent losses in problem assets and establish reservesthat are sufficient to absorb those estimated losses; • compare problem asset totals to capital; • take appropriate corrective action to resolve problem assets; • consider the size and potential risks of material asset concentrations; and • provide periodic asset quality reports with adequate information for the bank’s management and the board of directors to assess the levelof asset risk.These guidelines also establish standards for evaluating and monitoring earnings and for ensuring that earnings are sufficient for themaintenance of adequate capital and reserves. 13Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsCapital Standards and Prompt Corrective Action. The Federal Deposit Insurance Act (“FDIA”) provides a framework for regulation of federallyinsured depository institutions, including banks, and their parent holding companies and other affiliates, by their federal banking regulators. Among otherthings, the FDIA requires the relevant federal banking regulator to take “prompt corrective action” with respect to a depository institution if that institutiondoes not meet certain capital adequacy standards, including requiring the prompt submission of an acceptable capital restoration plan if the depositoryinstitution’s bank regulator has concluded that it needs additional capital.Supervisory actions by a bank’s federal regulator under the prompt corrective action rules generally depend upon an institution’s classificationwithin one of five capital categories, which is determined on the basis of a bank’s Tier 1 leverage ratio, Tier 1 capital ratio and total capital ratio. Tier 1capital consists principally of common stock and nonredeemable preferred stock and retained earnings.Under current regulations a depository institution’s capital category under the prompt corrective action regulations will depend upon how itscapital levels compare with various relevant capital measures and the other factors established by the relevant federal banking regulations. Those regulations,which will change effective January 1, 2015 due to the adoption of new Basel III capital rules (discussed below), provide that a bank will be: • “well capitalized” if it has a Tier 1 leverage ratio of 5.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater and a total risk-based capital ratio of 10.0% or greater, and is not subject to any order or written directive by any such regulatory agency to meet andmaintain a specific capital level for any capital measure; • “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 4.0% or greater,and a leverage ratio of 4.0% or greater and is not “well capitalized”; • “undercapitalized” if it has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio of less than 4.0% or aleverage ratio of less than 4.0%; • “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than3.0% or a leverage ratio of less than 3.0%; and • “critically undercapitalized” if its tangible equity is equal to or less than 2.0% of average quarterly tangible assets.If a bank that is classified as a well-capitalized institution is determined (after notice and opportunity for hearing), by its federal regulatoryagency to be in an unsafe or unsound condition or to be engaging in an unsafe or unsound practice, that agency may, under certain circumstances, reclassifythe bank as adequately capitalized. If a bank has been classified as adequately capitalized or undercapitalized, its federal regulatory agency may neverthelessrequire it to comply with bank supervisory provisions and restrictions that would apply to a bank in the next lower capital classification, if that regulatoryagency has obtained supervisory information regarding the bank (other than with respect to its capital levels) that raises safety or soundness concerns.However, a significantly undercapitalized bank may not be treated by its regulatory agency as critically undercapitalized.The FDIA generally prohibits a bank from making any capital distributions (including payments of dividends) or paying any management fee toits parent holding company if the bank would thereafter be “undercapitalized.” “Undercapitalized” banks are subject to growth limitations and are requiredto submit a capital restoration plan. The federal regulatory agency for such a bank may not accept the bank’s capital restoration plan unless the agencydetermines, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the bank’s capital. In addition, for acapital restoration plan to be acceptable, the bank’s parent holding company must guarantee that the bank will comply with its capital restoration plan. Thebank holding company also is required to provide appropriate assurances of performance. Under such a guarantee and assurance of performance, if the bankfails to comply with its capital restoration plan, the parent holding company may become subject to liability for such failure in an amount up to the lesser of(i) 5.0% of its bank subsidiary’s total assets at the time it became undercapitalized, and (ii) the amount which is necessary (or would have been necessary) tobring the bank into compliance with all applicable capital standards as of the time it failed to comply with the plan. 14Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsIf an undercapitalized bank fails to submit an acceptable capital restoration plan, it will be treated as if it is “significantly undercapitalized.” Inthat event, the bank’s federal regulatory agency may impose a number of additional requirements and restrictions on the bank, including orders orrequirements (i) to sell sufficient voting stock to become “adequately capitalized,” (ii) to reduce its total assets, and (iii) cease the receipt of deposits fromcorrespondent banks. “Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator.New Basel III Capital Rules. The current risk-based capital rules applicable to domestic banks and bank holding companies are based on the1988 capital accord of the International Basel Committee on Banking Supervision (the “Basel Committee”), which is comprised of central banks and banksupervisors and regulators from the major industrialized countries. The Basel Committee develops broad policy guidelines for use by each country’s bankingregulators in determining the banking supervisory policies and rules they apply. In December 2010, the Basel Committee issued a new set of internationalguidelines for determining regulatory capital, known as “Basel III”. In June 2012, the FRB issued, for public comment, three notices of proposed rulemakingwhich, if adopted, would have made significant changes to the regulatory risk-based capital and leverage requirements for banks and bank holdingcompanies (“banking organizations”) in the United States consistent with the Basel III guidelines.In July 2013, the FRB adopted final rules (the “New Capital Rules”) establishing a new comprehensive capital framework for U.S. bankingorganizations, and the FDIC adopted substantially identical rules on an interim basis. The rules implement the Basel Committee’s December 2010 frameworkfor strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. The New Capital Rules substantially revise the risk-based capital requirements applicable to U.S. banking organizations, including the Company and FFB, from the current U.S. risk-based capital rules, definethe components of capital and address other issues affecting the capital ratios applicable to banking organizations. The New Capital Rules also replace theexisting approach used in risk-weighting of a banking organization’s assets with a more risk-sensitive approach. The New Capital Rules will becomeeffective for the Company and FFB on January 1, 2015 (subject in the case of certain of those Rules to phase-in periods).Among other things, the New Capital Rules (i) introduce a new capital measure called “Common Equity Tier 1” (“CET-1”), (ii) specify that Tier1 capital consists of CET-1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) apply most deductions and adjustments toregulatory capital measures to CET-1 and not to the other components of capital, thus potentially requiring banking organizations to achieve and maintainhigher levels of CET-1 in order to meet minimum capital ratios, and (iv) expand the scope of the deductions and adjustments from capital as compared toexisting capital rules.Under the New Capital Rules, as of January 1, 2015 the minimum capital ratios will be: CET-1 to risk-weighted assets 4.5% Tier 1 capital (i.e., CET-1 plus Additional Tier 1) to risk-weighted assets 6.0% Total capital (i.e., Tier 1 plus Tier 2) to risk-weighted assets 8.0% Tier 1 capital-to-average consolidated assets as reported on consolidated financial statements(1) 4.0% (1)Commonly referred to as a banking institution’s “leverage ratio”.When fully phased in on January 1, 2019, the New Capital Rules also will require the Company and FFB, as well as most other bank holdingcompanies and banks, to maintain a 2.5% “capital conservation buffer,” composed entirely of CET-1, on top of the minimum risk-weighted asset ratios setforth in the above table. This capital conservation buffer will have the effect of increasing (i) the CET-1-to-risk-weighted asset ratio to 7.0%, (ii) the Tier 1capital-to-risk-weighted asset ratio to 8.5%, and (iii) the Total capital-to-risk weighted asset ratio to 10.5%.The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking organizations with a ratio of CET-1 torisk-weighted assets above the minimum, but below the capital conservation buffer, will face constraints on dividends, equity repurchases and executivecompensation based on the amount of the shortfall. The implementation of the capital conservation buffer will begin on January 1, 2016 at 0.625%, and willincrease by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019. 15Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe New Capital Rules provide for a number of deductions from and adjustments to CET-1. These include, for example, the requirement thatmortgage servicing rights, deferred tax assets dependent upon future taxable income, and significant investments in common equity issued bynonconsolidated financial entities be deducted from CET-1 to the extent that any one such category exceeds 10% of CET-1 or all such categories, in theaggregate, exceed 15% of CET-1. The deductions and other adjustments to CET-1 will be phased in incrementally between January 1, 2015 and January 1,2018. Additionally, the impact may be mitigated prior to or during the phase-in period by the determination of other than temporary impairments (“OTTI”)and additional accumulation of retained earnings. Under current capital standards, the effects of certain items of Accumulated Other Comprehensive Income(“AOCI”) included in capital are excluded for purposes of determining regulatory capital ratios. By contrast, under the New Capital Rules, the effects ofcertain items of AOCI will not be excluded. However, most banking organizations, including the Company and FFB, may make a one-time permanentelection, not later than January 1, 2014, to continue to exclude these items from capital. We have not yet determined whether to make this election.The New Capital Rules require that trust preferred securities be phased out from Tier 1 capital by January 1, 2016, except in the case of bankingorganizations with total consolidated assets of less than $15 billion, which will be permitted to include trust preferred securities issued prior to May 19, 2010in Tier 2 capital, without any limitations.In the case of FFB, the New Capital Rules also revise the “prompt corrective action” regulations under the Federal Deposit Insurance Act, by(i) introducing a CET-1 ratio requirement at each capital quality level (other than critically undercapitalized), with a minimum ratio of 6.5% for a bank toqualify for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio for each category, with the minimum Tier 1 capital ratio for well-capitalized status being 8% (as compared to the current 6%); and (iii) requiring a leverage ratio of 4% to be adequately capitalized (as compared to thecurrent 3% leverage ratio for a bank with a composite supervisory rating of 1) and a leverage ratio of 5% to be well-capitalized. The New Capital Rules donot, however, change the total risk-based capital requirement for any “prompt corrective action” category.The New Capital Rules prescribe a standardized approach for calculating risk-weighted assets that expand the risk-weighting categories from thecurrent four Basel I-derived categories (0%, 20%, 50% and 100%) to a larger and more risk-sensitive number of categories, depending on the nature of theassets, generally ranging from 0% for U.S. Government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for avariety of asset categories. In addition, the New Capital Rules also provide more advantageous risk weights for derivatives and repurchase-style transactionscleared through a qualifying central counterparty and increase the scope of eligible guarantors and eligible collateral for purposes of credit risk mitigation.FDIC Deposit Insurance. In addition to supervising and regulating state chartered non-member banks, the FDIC insures deposits, up toprescribed statutory limits, of all federally insured banks and savings institutions in order to safeguard the safety and soundness of the banking and savingsindustries. The FDIC insures client deposits through the Deposit Insurance Fund (the “DIF”) up to prescribed limits for each depositor. The Dodd-Frank Actincreased the maximum deposit insurance amount from $100,000 to $250,000. The DIF is funded primarily by FDIC assessments paid by each DIF memberinstitution. The amount of each DIF member’s assessment is based on its relative risk of default as measured by regulatory capital ratios and other supervisoryfactors. Pursuant to the Federal Deposit Insurance Reform Act of 2005, the FDIC is authorized to set the reserve ratio for the DIF annually at between 1.15%and 1.50% of estimated insured deposits. The FDIC may increase or decrease the assessment rate schedule on a semi-annual basis. The Dodd-Frank Actincreased the minimum reserve ratio from 1.15% of estimated deposits to 1.35% of estimated deposits (or a comparable percentage of the asset-basedassessment base described above). The Dodd-Frank Act requires the FDIC to offset the effect of the increase in the minimum reserve ratio when settingassessments for insured depository institutions with less than $10 billion in total consolidated assets, such as FFB. The FDIC has until September 30, 2020 toachieve the new minimum reserve ratio of 1.35%.Additionally, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by theFinancing Corporation (“FICO”), an agency of the Federal government established to recapitalize the predecessor to the DIF. The FICO assessment rates,which are determined quarterly, averaged 0.066% of insured deposits in fiscal 2013. These assessments will continue until the FICO bonds mature in 2017. 16Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe orunsound or that the institution has engaged in unsafe or unsound practices that pose a risk to the DIF or that may prejudice the interest of the bank’sdepositors. Pursuant to California law, the termination of a California state chartered bank’s FDIC deposit insurance would result in the revocation of thebank’s charter, forcing it to cease conducting banking operations.Community Reinvestment Act and Fair Lending Developments. Like all other federally regulated banks, FFB is subject to fair lendingrequirements and the evaluation of its small business operations under the CRA. The CRA generally requires the federal banking agencies to evaluate therecord of a bank in meeting the credit needs of its local communities, including those of low and moderate income neighborhoods in its service area. Abank’s compliance with its CRA obligations is based on a performance-based evaluation system which determines the bank’s CRA ratings on the basis of itscommunity lending and community development performance. A bank may have substantial penalties imposed on it and generally will be required to takecorrective measures in the event it violates its obligations under the CRA. Federal banking agencies also may take compliance with the CRA and other fairlending laws into account when regulating and supervising other activities of a bank or its bank holding company. Moreover, when a bank holding companyfiles an application for approval to acquire a bank or another bank holding company, the FRB will review the CRA assessment of each of the subsidiarybanks of the applicant bank holding company, and a low CRA rating may be the basis for denying the application.USA Patriot Act of 2001 and Bank Secrecy Act. In October 2001, the Uniting and Strengthening America by Providing Appropriate ToolsRequired to Intercept and Obstruct Terrorism of 2001 (USA Patriot Act) was enacted into law in response to the September 11, 2001 terrorist attacks. The USAPatriot Act was adopted to strengthen the ability of U.S. law enforcement and intelligence agencies to work cohesively to combat terrorism on a variety offronts. Of particular relevance to banks and other federally insured depository institutions are the USA Patriot Act’s sweeping anti-money laundering andfinancial transparency provisions and various related implementing regulations that: • establish due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts and foreigncorrespondent accounts; • prohibit U.S. institutions from providing correspondent accounts to foreign shell banks; • establish standards for verifying client identification at account opening; • set rules to promote cooperation among financial institutions, regulatory agencies and law enforcement entities in identifying parties thatmay be involved in terrorism or money laundering;Under implementing regulations issued by the U.S. Treasury Department, banking institutions are required to incorporate a client identificationprogram into their written money laundering plans that includes procedures for: • verifying the identity of any person seeking to open an account, to the extent reasonable and practicable; • maintaining records of the information used to verify the person’s identity; and • determining whether the person appears on any list of known or suspected terrorists or terrorist organizations.The Company and FFB also are subject to the federal Bank Secrecy Act of 1970, as amended, or the Bank Secrecy Act, which establishesrequirements for recordkeeping and reporting by banks and other financial institutions designed to help identify the source, volume and movement ofcurrency and monetary instruments into and out of the United States to help detect and prevent money laundering and other illegal activities. The BankSecrecy Act requires financial institutions to develop and maintain a program reasonably designed to ensure and monitor compliance with its requirements,to train employees to comply with and to test the effectiveness of the program. Any failure to meet the requirements of the Bank Secrecy Act can involvesubstantial penalties and result in adverse regulatory action. FFI and FFB have each adopted policies and procedures to comply with the Bank Secrecy Act. 17Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsConsumer Laws and Regulations. The Company and FFB are subject to a broad range of federal and state consumer protection laws andregulations prohibiting unfair or fraudulent business practices, untrue or misleading advertising and unfair competition. Those laws and regulations include: • The Home Ownership and Equity Protection Act of 1994, or HOEPA, which requires additional disclosures and consumer protections toborrowers designed to protect them against certain lending practices, such as practices deemed to constitute “predatory lending.” • The Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act, or the FACT Act, which requires bankinginstitutions and financial services businesses to adopt practices and procedures designed to help deter identity theft, including developingappropriate fraud response programs, and provides consumers with greater control of their credit data. • The Truth in Lending Act, or TILA, which requires that credit terms be disclosed in a meaningful and consistent way so that consumers maycompare credit terms more readily and knowledgeably. • The Equal Credit Opportunity Act, or ECOA, which generally prohibits, in connection with any consumer or business credit transactions,discrimination on the basis of race, color, religion, national origin, sex, marital status, age (except in limited circumstances), or the fact that aborrower is receiving income from public assistance programs. • The Fair Housing Act, which regulates many lending practices, including making it unlawful for any lender to discriminate in its housing-related lending activities against any person because of race, color, religion, national origin, sex, handicap or familial status. • The Home Mortgage Disclosure Act, or HMDA, which includes a “fair lending” aspect that requires the collection and disclosure of dataabout applicant and borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes. • The Real Estate Settlement Procedures Act, or RESPA, which requires lenders to provide borrowers with disclosures regarding the nature andcost of real estate settlements and prohibits certain abusive practices, such as kickbacks. • The National Flood Insurance Act, or NFIA, which requires homes in flood-prone areas with mortgages from a federally regulated lender tohave flood insurance. • The Secure and Fair Enforcement for Mortgage Licensing Act of 2008, or SAFE Act, which requires mortgage loan originator employees offederally insured institutions to register with the Nationwide Mortgage Licensing System and Registry, a database created by the states tosupport the licensing of mortgage loan originators, prior to originating residential mortgage loans. 18Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsRegulation W. The FRB has adopted Regulation W to comprehensively implement Sections 23A and 23B of the Federal Reserve Act. Sections23A and 23B and Regulation W limit transactions between a bank and its affiliates and limit a bank’s ability to transfer to its affiliates the benefits arisingfrom the bank’s access to insured deposits, the payment system and the discount window and other benefits of the Federal Reserve System. The statute andregulation impose quantitative and qualitative limits on the ability of a bank to extend credit to, or engage in certain other transactions with, an affiliate (anda non-affiliate if an affiliate benefits from the transaction). However, certain transactions that generally do not expose a bank to undue risk or abuse the safetynet are exempted from coverage under Regulation W.Historically, a subsidiary of a bank was not considered an affiliate for purposes of Sections 23A and 23B, since their activities were limited toactivities permissible for the bank itself. However, the Gramm-Leach-Bliley Act authorized “financial subsidiaries” that may engage in activities notpermissible for a bank. These financial subsidiaries are now considered affiliates that are subject to Sections 23A and 23B. Certain transactions between afinancial subsidiary and another affiliate of a bank are also covered by Sections 23A and 23B and under Regulation W.First Foundation AdvisorsRegistered Investment Adviser Regulation. FFA is a registered investment adviser under the Investment Advisers Act, and the SEC’s regulationspromulgated thereunder. The Investment Advisers Act imposes numerous obligations on registered investment advisers, including fiduciary, recordkeeping,operational, and disclosure obligations. FFA is also subject to regulation under the securities laws and fiduciary laws of certain states and to EmployeeRetirement Income Security Act of 1974, or ERISA, and to regulations promulgated thereunder, insofar as it is a “fiduciary” under ERISA with respect tocertain of its clients. ERISA and the applicable provisions of the Code, impose certain duties on persons who are fiduciaries under ERISA, and prohibitcertain transactions by the fiduciaries (and certain other related parties) to such plans. The foregoing laws and regulations generally grant supervisoryagencies broad administrative powers, including the power to limit or restrict FFA from conducting its business in the event that it fails to comply with suchlaws and regulations. Possible sanctions that may be imposed in the event of such noncompliance include the suspension of individual employees,limitations on the business activities for specified periods of time, revocation of registration as an investment adviser and/or other registrations, and othercensures and fines. Changes in these laws or regulations could have a material adverse impact on the profitability and mode of operations of FFI and itssubsidiaries.Future LegislationCongress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enactlegislation from time to time affecting the regulation of financial institutions chartered by or operating in those states. Federal and state regulatory agenciesalso periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied. The substance or impact ofpending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation could impact theregulatory structure under which we operate and may significantly increase our costs, impede the efficiency of our internal business processes, require us toincrease our regulatory capital and modify our business strategy, and limit our ability to pursue business opportunities in an efficient manner.Item 1A. Risk FactorsThis Annual Report on Form 10-K contains forward-looking statements, as described at page (ii) “Note Regarding Forward-Looking Statements.”We believe that the risks described below are the most important factors which may cause our actual results of operations in the future to differ materiallyfrom the results set forth in the forward-looking statements contained in this Annual Report on Form 10-K. However, our businesses and financialperformance could be materially and adversely affected in the future by other risks or developments that either are not known to us at the present time or arecurrently immaterial to our business. Such risks could include, but are not necessarily limited to, unexpected changes in government regulations, unexpectedadverse changes in local, national or global economic or market conditions and the commencement of litigation against us. 19Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsRisks Affecting our BusinessWe could incur losses on the loans we make.Loan defaults and the incurrence of losses on loans are inherent risks in our business. The incurrence of loan losses necessitate loan charge-offsand write-downs in the carrying values of a bank’s assets and, therefore, can adversely affect a bank’s results of operations and financial condition. As a result,our results of operations will be directly affected by the volume and timing of loan losses, which for a number of reasons can vary from period to period. Therisks of loan losses are exacerbated by economic recessions and downturns, as evidenced by the substantial magnitude of the loan losses which many banksincurred as a result of the economic recession that commenced in 2008 and continued into 2010, or by other events that can lead to local or regional businessdownturns. Although an economic recovery in the U.S. has begun, unemployment remains high and there continues to be uncertainties about the strengthand sustainability of the recovery. If the economic recovery were to remain weak or economic conditions were again to deteriorate, our borrowers may fail toperform in accordance with the terms of their loans and loan charge-offs and asset write-downs could increase, which could have a material adverse effect onour business, financial condition, results of operations and prospects.If our allowance for loan and lease losses is not adequate to cover actual or estimated future loan losses, our earnings may decline.On a quarterly basis we conduct various analyses to estimate the losses and risks inherent in our loan portfolio. However, this evaluation requiresus to make a number of estimates and judgments regarding the financial condition of our borrowers, the fair value of the properties collateralizing the loanswe have made to them and economic trends that could affect the ability of borrowers to meet their loan payment obligations to us and our ability to offset ormitigate loan losses by foreclosing and reselling the real properties collateralizing many of those loans. Based on those estimates and judgments, we makedeterminations, which are necessarily subjective, with respect to the adequacy of our allowance for loan and lease losses, or ALLL, and the extent to which itis necessary to increase our ALLL by making additional provisions for loan and lease losses through a charge to income. Inaccurate managementassumptions, deterioration of economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loansand other factors, both within and outside of our control, may require us to increase our ALLL. In addition, our regulators, as an integral part of theirexamination process, periodically review our loan portfolio and the adequacy of our ALLL and may require adjustments based on judgments different thanthose of management. Further, if actual charge-offs in future periods exceed the amounts allocated to the ALLL, we may need additional provision for loanlosses to restore the adequacy of our ALLL. If we are required to materially increase our level of ALLL for any reason, our business, financial condition,results of operations and prospects could be materially and adversely affected.Adverse changes in economic conditions in Southern California could disproportionately harm us.The substantial majority of our clients and the properties securing a large proportion of the loans we have made and will continue to make arelocated in Southern California, where foreclosure rates and unemployment have remained high relative to most other regions of the country. A downturn ineconomic conditions, or even the continued weakness of the economic recovery in California, or the occurrence of natural disasters, such as earthquakes orfires, which are more common in Southern California than in other parts of the country, could harm our business by: • reducing loan demand which, in turn, would lead to reductions in our net interest margins and net interest income; • adversely affecting the financial capability of borrowers to meet their loan obligations to us, which could result in increases in loanlosses and require us to make additional provisions for possible loan losses, thereby adversely affecting our operating results or causingus to incur losses in the future; and • causing reductions in real property values that, due to our reliance on real properties to collateralize many of our loans, could make itmore difficult for us to prevent losses from being incurred on nonperforming loans through the foreclosure and sale of those realproperties. 20Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAdverse changes in economic and market conditions, and changes in government regulations and government monetary policies couldmaterially and negatively affect our business and results of operations.Our business and results of operations are directly affected by factors such as political, economic and market conditions, broad trends in industryand finance, legislative and regulatory changes, changes in government monetary and fiscal policies and inflation, all of which are beyond our control.Deterioration in economic conditions, whether caused by global, national, regional or local concerns or problems, or a further downgrade in the United Statesdebt rating, could result in the following consequences, any of which could have a material adverse effect on our business, financial condition, results ofoperations or prospects: • a deterioration in the credit quality of our banking clients; • an increase in loan delinquencies and losses; • an increase in problem assets and foreclosures; • declines in the values of real properties collateralizing the loans we make; • the need to increase our ALLL; • fluctuations in the value of, or impairment losses which may be incurred with respect to, FFB’s investment securities; • decreases in the demand for our products and services; • increases in competition for low cost or non-interest bearing deposits; and • decreases in the investment management and advisory fees we generate.Changes in interest rates could reduce our net interest margin and net interest income.Income and cash flows from our banking operations depend to a great extent on the difference or “spread” between the interest we earn oninterest-earning assets, such as loans and investment securities, and the interest rates we pay on interest-bearing liabilities, such as deposits and borrowings.Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, the monetary policies of the FederalReserve Board, and competition from other banks and financial institutions. Changes in monetary policy, including changes in interest rates, will influencethe origination and market value of and our yields on loans and investment securities and the interest we pay on deposits and on our borrowings. If we areunable to adjust our interest rates on loans and deposits on a timely basis in response to such changes in economic conditions or monetary policies, ourearnings could be adversely affected. In addition, if the rates of interest we pay on deposits, borrowings and other interest-bearing liabilities increase fasterthan we are able to increase the rates of interest we charge on loans or the yields we realize on investments and other interest-earning assets, our net interestincome and, therefore, our earnings will decrease. Rising interest rates also generally result in a reduction in loan originations, declines in loan repaymentrates and reductions in the ability of borrowers to repay their current loan obligations, which could result in increased loan defaults and charge-offs and couldrequire increases to our ALLL. Additionally, we could be prevented from increasing the interest rates we charge on loans or from reducing the interest rateswe offer on deposits due to price competition from other banks and financial institutions with which we compete. Conversely, in a declining interest rateenvironment, our earnings could be adversely affected if the interest rates we are able to charge on loans or other investments decline more quickly than thosewe pay on deposits and borrowings.Residential real estate loans represent a high percentage of the loans we make, making our results of operations vulnerable to downturns inthe real estate market.At December 31, 2013, loans secured by multifamily and single family residences represented 70% of FFB’s outstanding loans. The repaymentof residential real estate loans is highly dependent on the market values of the real properties that collateralize these loans and on the ability of the borrowersto meet their loan repayment obligations to us, which can be adversely affected by economic downturns that lead to increases in unemployment, or by risinginterest rates which can increase the amount of the interest borrowers are required to pay on their loans. As a result, our operating results are more vulnerableto adverse changes in the real estate market than other financial institutions with more diversified loan portfolios and we could incur losses in the event ofchanges in economic conditions that disproportionately affect the real estate markets. 21Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsLiquidity risk could adversely affect our ability to fund operations and hurt our financial condition.Liquidity is essential to our banking business, as we use cash to make loans and purchase investment securities and other interest-earning assetsand to fund deposit withdrawals that occur in the ordinary course of our business. Our principal sources of liquidity include earnings, deposits, Federal HomeLoan Bank (or FHLB) borrowings, sales of loans or investment securities held for sale, and repayments by clients of loans we have made to them, and capitalcontributions that we may make to FFB with proceeds from sales of our common stock or from borrowings that we may incur. If the ability to obtain fundsfrom these sources becomes limited or the costs of those funds increase, whether due to factors that affect us specifically, including our financial performance,or due to factors that affect the financial services industry in general, including weakening economic conditions or negative views and expectations aboutthe prospects for the financial services industry as a whole, then our ability to grow our banking and investment advisory and wealth management businesseswould be harmed, which could have a material adverse effect on our business, financial condition, results of operations and prospects.Our 6 largest deposit clients account for 36% of our total deposits.As of December 31, 2013, our 6 largest bank depositors accounted for, in the aggregate, 36% of our total deposits. As a result, a material decreasein the volume of those deposits by a relatively small number of our depositors could reduce our liquidity, in which event it could became necessary for us toreplace those deposits with higher-cost deposits, lower-yielding securities or FHLB borrowings, which would adversely affect our net interest income and,therefore, our results of operations.Although we plan to grow our business by acquiring other banks, there is no assurance that we will succeed in doing so.One of the key elements of our business plan is to grow our banking franchise and increase our market share, and for that reason, we intend totake advantage of opportunities to acquire other banks. However, there is no assurance that we will succeed in doing so. Our ability to execute on our strategyto acquire other banks may require us to raise additional capital and to increase FFB’s capital position to support the growth of our banking franchise, andwill also depend on market conditions, over which we have no control. Moreover, any bank acquisitions will require the approval of our bank regulators andthere can be no assurance that we will be able to obtain such approvals on acceptable terms, if at all.Expansion of our banking franchise may not increase our profitability and may adversely affect our future operating results.Since we commenced our banking business in October 2007, we have grown our banking franchise by establishing three new wealthmanagement offices in Southern California and one in Las Vegas, Nevada and acquiring two new offices in Palm Desert and El Centro, California as part ofour acquisition of Desert Commercial Bank, or DCB. We plan to continue to grow our banking franchise both organically and through potential acquisitionsof other banks. However, the implementation of our growth strategy will pose a number of risks, including: • the risk that any newly established wealth management offices will not generate revenues in amounts sufficient to cover the start-up costsof those offices, which would reduce our income or possibly cause us to incur operating losses; • the risk that any bank acquisitions we might consummate in the future will prove not to be accretive to or may reduce our earnings if wedo not realize anticipated cost savings or if we incur unanticipated costs in integrating the acquired banks into our operations or if asubstantial number of the clients of the acquired banks move their banking business to our competitors; • the risk that such expansion efforts will divert management time and effort from our existing banking operations, which could adverselyaffect our future financial performance; and • the risk that the additional capital which we may need to support our growth or the issuance of shares in any bank acquisitions will bedilutive of the share ownership of our existing shareholders. 22Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe recently obtained a $7.5 million five year term loan that is secured by a pledge of all of FFB’s shares, which could have a materialadverse effect on our business if we are not able to meet certain financial covenants or repay the loan.In April 2013, we entered into a five year term loan agreement pursuant to which we obtained $7.5 million of funds from another bank. We areusing the proceeds of the loan to fund the growth of our businesses, which includes the contribution of equity to FFB. In order to obtain that loan, however,we were required to pledge all of the shares of FFB stock to the bank lender as security for our payment and other obligations under that loan agreement.Additionally, the loan agreement contains a number of financial and other covenants which we are required to meet over the five year term of the loan. As aresult, such borrowings may make us more vulnerable to general economic downturns and competitive pressures, which could cause us to fail to meet one ormore of those financial covenants. If we were unable to meet any of those covenants, we could be required to repay the loan sooner than its maturity date inMay 2018. If we are unable to repay the loan when due, whether at maturity or earlier, the lender would have the right to sell our FFB shares to recover theamounts that are due it by us under the loan agreement. Since the stock of FFB comprises one of our most important assets on which our success is dependent,an inability on our part to repay the loan would have a material adverse effect on our business, financial condition, results of operations and prospects andcause us to incur significant losses. See the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Term Loan” for additional information about this loan.We face intense competition from other banks and financial institutions and other wealth and investment management firms that could hurtour business.We conduct our business operations primarily in Southern California, where the banking business is highly competitive and is dominated bylarge multi-state and in-state banks with operations and offices covering wide geographic areas. We also compete with other financial service businesses,including investment advisory and wealth management firms, mutual fund companies, and securities brokerage and investment banking firms that offercompetitive banking and financial products and services as well as products and services that we do not offer. Larger banks and many of those other financialservice organizations have greater financial and marketing resources that enable them to conduct extensive advertising campaigns and to shift resources toregions or activities of greater potential profitability. They also have substantially more capital and higher lending limits, which enable them to attract largerclients and offer financial products and services that we are unable to offer, putting us at a disadvantage in competing with them for loans and deposits andinvestment management clients. If we are unable to compete effectively with those banking or other financial services businesses, we could find it moredifficult to attract new and retain existing clients and our net interest margins, net interest income and investment management advisory fees could decline,which would adversely affect our results of operations and could cause us to incur losses in the future.In addition, our ability to successfully attract and retain investment advisory and wealth management clients is dependent on our ability tocompete with competitors’ investment products, level of investment performance, client services and marketing and distribution capabilities. If we are notsuccessful in attracting new and retaining existing clients, our business, financial condition, results of operations and prospects may be materially andadversely affected.The loss of key personnel or inability to attract additional personnel could hurt our future financial performance.We currently depend heavily on the contributions and services provided by Rick Keller, our Executive Chairman, Scott Kavanaugh, ChiefExecutive Officer of FFI and FFB, John Hakopian, President of FFA, Dave Rahn, President of FFB and John Michel, Chief Financial Officer of FFI, FFB andFFA, as well as a number of other key management personnel. Our future success also will depend, in part, on our ability to attract and retain additionalqualified relationship managers, private banking officers and investment managers. Competition for such personnel is intense and we may not succeed inretaining our existing personnel or attracting additional personnel we will need to continue to grow our business. If we are unable to continue to retain theservices of any of our existing executive management personnel, or attract and retain qualified relationship managers, private banking officers andinvestment managers, our ability to retain existing clients or attract new clients could be adversely affected and our business, financial condition, results ofoperations or prospects could be significantly harmed. 23Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsBanking laws and government regulations may adversely affect our operations, restrict our growth or increase our operating costs.We are also subject to extensive supervision and regulation by federal and California state bank regulatory agencies. The primary objective ofthese agencies is to protect bank depositors and not shareholders, whose respective interests often differ. These regulatory agencies have the legal authorityto impose restrictions which they believe are needed to protect depositors, even if those restrictions would adversely affect the ability of a banking institutionto expand its business, restrict its ability to pay cash dividends, cause its costs of doing business to increase, or hinder its ability to compete with lessregulated financial services companies.We are also subject to numerous laws and government regulations that are applicable to banks and other financial institutions, including:Consumer Protection Laws and Regulations. We are required to comply with various consumer protection laws, including the CommunityReinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lendingrequirements on financial institutions.Bank Secrecy Act and other Anti-Money Laundering Laws and Regulations. As a financial institution, we are required by the Bank Secrecy Act,the USA PATRIOT Act of 2001 and other anti-money laundering laws and regulations, to institute and maintain an effective anti-money laundering programand file suspicious activity and currency transaction reports as appropriate. We are also subject to increased scrutiny of compliance with the rules enforced bythe Office of Foreign Assets Control.If the policies, procedures or systems which we have adopted to comply with these laws and regulations are found by any regulatory or othergovernment agencies to be deficient or we fail to comply with any of these banking laws or regulations, we would be subject to liability, including fines andregulatory actions, which may lead to the imposition of restrictions on our ability to pay dividends or to proceed with certain aspects of our business plan,including our acquisition plans. Additionally, a failure to maintain and implement adequate programs to combat money laundering and terrorist financingcould also have serious reputational consequences for us. Due, moreover, to the complex and technical nature of many of these laws and governmentregulations, inadvertent violations may and sometimes do occur. In such an event, we would be required to correct or implement measures to prevent arecurrence of such violations, which could increase our operating costs. If more serious violations were to occur, the regulatory agencies could limit ouractivities or growth, fine us, or ultimately put FFB out of business if it was to encounter severe liquidity problems or a significant erosion of capital below theminimum amounts required under applicable bank regulations. Any of these occurrences could have a material adverse effect on our business, financialcondition, results of operations or prospects.The enactment of the Dodd-Frank Act and the new capital rules pose uncertainties for our business and are likely to increase our costs ofdoing business in the future.On July 21, 2010, the President signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, into law.Changes made by the Dodd-Frank Act include, among others: (i) the establishment of new requirements on banking, derivative and investment activities,including modified capital requirements, (ii) the repeal of the prohibition on the payment of interest on business demand deposit accounts, (iii) theimposition of limitations on debit card interchange fees, (iv) the promulgation of enhanced financial institution safety and soundness regulations,(v) increases in assessment fees and deposit insurance coverage, and (vi) the establishment of new regulatory bodies, such as the Bureau of ConsumerFinancial Protection, or the BCFP. The BCFP has been granted rulemaking authority over several federal consumer financial protection laws and, in someinstances, has the authority to examine and supervise and enforce compliance by banks and other financial service organizations with these laws andregulations. Certain provisions of the Dodd-Frank Act were made effective immediately; however, much of the Dodd-Frank Act is subject to furtherrulemaking and/or studies. As a result, we are not able to fully assess the impact that the Dodd-Frank Act will have on us until final rules are adopted andimplemented. However, we expect that the Dodd-Frank Act and its implementing regulations will increase the costs of doing business for us and otherbanking institutions. We also expect that the repeal of the prohibition on the payment by banks of interest on business demand deposits will result inincreased “price” competition among banks for such deposits, which could increase the costs of funds to us (as well as to other banks) and result in areduction in our net interest margins and income in the future. 24Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsIn July 2013, the FRB adopted final rules (the “New Capital Rules”) establishing a new comprehensive capital framework for U.S. bankingorganizations based on capital guidelines adopted by the International Basel Committee on Banking Supervision (the “Basel Committee”), and the FDICadopted substantially identical rules on an interim basis. The rules not only implement the Basel Committee’s December 2010 framework for strengtheninginternational capital standards, but also certain provisions of the Dodd-Frank Act. The New Capital Rules substantially revise and heighten the risk-basedcapital requirements applicable to U.S. banking organizations, including FFI and FFB, from the current U.S. risk-based capital rules and replace the existingapproach used in risk-weighting of a banking organization’s assets with a more risk-sensitive approach. The New Capital Rules will become effective for FFIand FFB on January 1, 2015 (subject in the case of certain of those rules to phase-in periods). These new Capital Rules will increase the amount of capitalwhich both FFI and FFB will have to maintain and it is expected that it will also increase the costs of capital for bank holding companies and banks in theUnited States. See “Supervision and Regulation—First Foundation Bank—New Basel III Capital Rules” for additional information regarding these newcapital requirements.The fair value of our investment securities can fluctuate due to factors outside of our control.As of December 31, 2013, the fair value of our investment securities portfolio was $59.1 million. Factors beyond our control can significantlyinfluence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, butare not limited to, rating agency actions in respect of the securities, defaults by the issuer or with respect to the underlying securities, changes in marketinterest rates and continued instability in the capital markets. Any of these factors, among others, could cause other-than-temporary impairments and realizedand/or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, results ofoperations, financial condition and prospects. In addition, the process for determining whether impairment of a security is other-than-temporary usuallyrequires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security in orderto assess the probability of receiving all contractual principal and interest payments on the security.Premiums for federal deposit insurance have increased and may increase even more.The FDIC uses the Deposit Insurance Fund, or DIF, to cover insured deposits in the event of bank failures, and maintains that Fund by assessinginsurance premiums on FDIC-insured banks and other depository institutions. The increase in bank failures during the three years ended December 31, 2010caused the DIF to fall below the minimum balance required by law, forcing the FDIC to raise the insurance premiums assessed on FDIC-insured banks in orderto rebuild the DIF. Depending on the frequency and severity of bank failures in the future, the FDIC may further increase premiums or assessments. Inaddition, our FDIC insurance premiums will increase as we grow our banking business. Such increases in FDIC insurance premiums would increase our costsof doing business and, therefore, could adversely affect our results of operations and earnings in the future.Technology and marketing costs may negatively impact our future operating results.The financial services industry is constantly undergoing technological changes in the types of products and services provided to clients toenhance client convenience. Our future success will depend upon our ability to address the changing technological needs of our clients and to compete withother financial services organizations which have successfully implemented new technologies. The costs of implementing technological changes, newproduct development and marketing costs may increase our operating expenses without a commensurate increase in our business or revenues, in which eventour business, financial condition, results of operations and prospects could be materially and adversely affected. 25Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe rely on communications, information, operating and financial control systems technology from third-party service providers, and wecould suffer an interruption in those systems.We rely heavily on third-party service providers for much of our communications, information, operating and financial control systemstechnology, including our internet banking services and data processing systems. Any failure or interruption, or breaches in security, of these systems couldresult in failures or interruptions in our client relationship management, general ledger, deposit, servicing and/or loan origination systems and, therefore,could harm our business, financial condition, results of operations and prospects. Additionally, interruptions in service and security breaches could leadexisting clients to terminate their business relationships with us, could make it more difficult for us to attract new clients and subject us to additionalregulatory scrutiny and possibly financial liability, any of which could have a material adverse effect on our business, financial condition, results ofoperations and prospects.We may bear costs associated with the proliferation of computer theft and cyber-crime.In the ordinary course of our business, we are required to collect, use and hold data concerning our clients. Threats to data security, includingunauthorized access and cyber-attacks, rapidly emerge and change, exposing us to additional costs for protection or remediation and competing timeconstraints to secure our data in accordance with customer expectations and statutory and regulatory requirements. It is difficult or impossible to defendagainst every risk being posed by changing technologies, as well as against criminals who are intent on committing cyber-crime. Increasing sophistication ofcyber-criminals and terrorists make keeping up with new threats difficult and could result in security breaches. Patching and other measures to protectexisting systems and servers could be inadequate, especially on systems that are being retired. Controls employed by our information technology departmentand cloud vendors could prove inadequate. We could also experience a breach by intentional or negligent conduct on the part of employees or other internalsources. Our systems and those of our third-party vendors may become vulnerable to damage or disruption due to circumstances beyond our or their control,such as from catastrophic events, power anomalies or outages, natural disasters, network failures, and viruses and malware.A breach of our security that results in unauthorized access to our data could expose us to a disruption or challenges relating to our dailyoperations, as well as to data loss, litigation, damages, fines and penalties, significant increases in compliance costs, and reputational damage, any of whichcould have a material adverse effect on our business, results of operations, financial condition and prospects.Our ability to attract and retain clients and employees could be adversely affected if our reputation is harmed.The ability of FFB and FFA to attract and retain clients and key employees could be adversely affected if our reputation is harmed. Any actual orperceived failure to address various issues could cause reputational harm, including a failure to address any of the following types of issues: legal andregulatory requirements; the proper maintenance or protection of the privacy of client and employee financial or other personal information; record keeping;money-laundering; potential conflicts of interest and ethical issues. Moreover, any failure to appropriately address any issues of this nature could give rise toadditional regulatory restrictions, and legal risks, which could lead to costly litigation or subject us to enforcement actions, fines, or penalties and cause us toincur related costs and expenses. In addition, our banking, investment advisory and wealth management businesses are dependent on the integrity of ourbanking personnel and our investment advisory and wealth managers. Lapses in integrity could cause reputational harm to our businesses which could resultin the loss of clients and, therefore, could have a material adverse effect on our business, financial condition, results of operations and prospects. 26Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe are exposed to risk of environmental liabilities with respect to real properties that we may acquire.From time to time, in the ordinary course of our business, we acquire, by or in lieu of foreclosure, real properties which collateralizenonperforming loans (often referred to as “Real Estate Owned” or “REO”). As an owner of such properties, we could become subject to environmentalliabilities and incur substantial costs for any property damage, personal injury, investigation and clean-up that may be required due to any environmentalcontamination that may be found to exist at any of those properties, even if we did not engage in the activities that led to such contamination and thoseactivities took place prior to our ownership of the properties. In addition, if we are the owner or former owner of a contaminated site, we may be subject tocommon law claims by third parties seeking damages for environmental contamination emanating from the site. If we were to become subject to significantenvironmental liabilities or costs, our business, financial conditions, results of operations and prospects could be materially and adversely affected.We may incur significant losses as a result of ineffective risk management processes and strategies.We seek to monitor and control our risk exposure through a risk and control framework encompassing a variety of separate but complementaryfinancial, credit, operational, compliance systems, and internal control and management review processes. However, those systems and review processes andthe judgments that accompany their application may not be effective and, as a result, we may not anticipate every economic and financial outcome in allmarket environments or the specifics and timing of such outcomes, particularly in the event of the kinds of dislocations in market conditions experiencedover the last several years, which highlight the limitations inherent in using historical data to manage risk. If those systems and review processes prove to beineffective in identifying and managing risks, our results of operations could be adversely affected.Our investment advisory and wealth management business may be negatively impacted by changes in economic and market conditions.Our investment advisory and wealth management businesses may be negatively impacted by changes in general economic and marketconditions because the performance of those businesses is directly affected by conditions in the financial and securities markets. The financial markets andbusinesses operating in the securities industry are highly volatile (meaning that performance results can vary greatly within short periods of time) and aredirectly affected by, among other factors, domestic and foreign economic conditions and general trends in business and finance, and by the threat, as well asthe occurrence of global conflicts, all of which are beyond our control. We cannot assure you that broad market performance will be favorable in the future.Declines in the financial markets or a lack of sustained growth may result in a decline in the performance of our investment advisory and wealth managementbusiness and may adversely affect the market value and performance of the investment securities that we manage, which could lead to reductions in ourinvestment management and advisory fees, because they are based primarily on the market value of the securities we manage and could lead some of ourclients to reduce their assets under management by us. If any of these events occur, the financial performance of our investment advisory and wealthmanagement business could be materially and adversely affected.The investment management contracts we have with our clients are terminable without cause and on relatively short notice by our clients,which makes us vulnerable to short term declines in the performance of the securities under our management.Like most other companies with an investment and wealth management business, the investment and wealth management contracts we have withour clients are typically terminable by the client without cause upon less than 30 days’ notice. As a result, even short term declines in the performance of thesecurities we manage, which can result from factors outside our control such as adverse changes in market or economic condition or the poor performance ofsome of the investments we have recommended to our clients, could lead some of our clients to move assets under our management to other asset classes suchas broad index funds or treasury securities, or to investment advisors which have investment product offerings or investment strategies different than ours.Therefore, our operating results are heavily dependent on the financial performance of our investment portfolios and the investment strategies we employ inour investment advisory businesses and even short-term declines in the performance of the investment portfolios we manage for our clients, whatever thecause, could result in a decline in assets under management and a corresponding decline in investment management fees, which would adversely affect ourresults of operations. 27Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe market for investment managers is extremely competitive and the loss of a key investment manager to a competitor could adverselyaffect our investment advisory and wealth management business.We believe that investment performance is one of the most important factors that affect the amount of assets under our management. As a result,we rely heavily on our investment managers to produce attractive investment returns for our clients. However, the market for investment managers isextremely competitive and is increasingly characterized by frequent movement of investment managers among different firms. In addition, our individualinvestment managers often have regular direct contact with particular clients, which can lead to a strong client relationship based on the client’s trust in thatindividual manager. As a result, the loss of a key investment manager to a competitor could jeopardize our relationships with some of our clients and lead tothe loss of client accounts. Losses of such accounts could have a material adverse effect on our business, financial condition, results of operations andprospects.FFA’s business is highly regulated, and the regulators have the ability to limit or restrict our activities and impose fines or other sanctionson FFA’s business.FFA is registered as an investment adviser with the SEC under the Investment Advisers Act and its business is highly regulated. The InvestmentAdvisers Act imposes numerous obligations on registered investment advisers, including fiduciary, record keeping, operational and disclosure obligations.Moreover, the Investment Advisers Act grants broad administrative powers to regulatory agencies such as the SEC. If the SEC or other government agenciesbelieve that FFA has failed to comply with applicable laws or regulations, these agencies have the power to impose fines, suspensions of individualemployees or other sanctions, which could include revocation of FFA’s registration under the Investment Advisers Act. Changes in legal, regulatory,accounting, tax and compliance requirements also could adversely affect FFA’s operations and financial results, by, among other things, increasing itsoperating expenses and placing restraints on the marketing of certain investment products. Like other investment management companies, FFA also faces therisks of lawsuits by clients. The outcome of regulatory proceedings and lawsuits is uncertain and difficult to predict. An adverse resolution of any regulatoryproceeding or lawsuit against FFA could result in substantial costs or reputational harm to FFA and, therefore, could have an adverse effect on the ability ofFFA to retain key relationship and wealth managers and existing clients or attract new clients, which would have a material adverse effect on our business,financial condition, results of operations and prospects.We are also subject to the provisions and regulations of ERISA to the extent that we act as a “fiduciary” under ERISA with respect to certain ofour clients. ERISA and the applicable provisions of the federal tax laws, impose a number of duties on persons who are fiduciaries under ERISA and prohibitcertain transactions involving the assets of each ERISA plan which is a client, as well as certain transactions by the fiduciaries (and certain other relatedparties) to such plans.We may be adversely affected by the soundness of other financial institutions or and brokerage firms.In addition, FFA does not provide custodial services for its clients. Instead, client investment accounts are maintained under custodialarrangements with large, well established brokerage firms, either directly or through FFB. As a result, the performance of, or even rumors or questions about,one or more of the brokerage firms that serve as custodian on our accounts could adversely affect the confidence of FFA’s customers in the services providedby those brokerage firms or otherwise adversely impact their custodial holdings. Such an occurrence could negatively impact the ability of FFA to attract orretain its customer relationships and, as a result, could have a material adverse effect on our business, financial condition, results of operations and prospects. 28Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsRisks related to Ownership of our Common StockWe do not plan to pay dividends for the foreseeable future. Additionally, our ability to pay dividends is subject to regulatory and otherrestrictions.In order to implement our growth strategy, it is our policy to retain cash for our businesses and, as a result, we have never paid any cashdividends and we have no plans to pay cash dividends at least for the foreseeable future. Additionally, our ability to pay dividends to our shareholders isrestricted by California and federal law. Moreover, the term loan agreement we entered into in April 2013 prohibits us from paying cash dividends to ourshareholders without the lender’s prior written consent. See the section entitled “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations—Financial Condition—Term Loan” for additional information about this loan.Our ability to pay dividends is also dependent on the payment to us of dividends by FFB and FFA, which are subject to statutory and regulatoryrestrictions as well. FFA’s ability to pay cash dividends to us is restricted under California law. FFB’s ability to pay dividends to us is limited by variousbanking statutes and regulations. Moreover, based on their assessment of the financial condition of FFB or other factors, the FDIC or the DBO could find thatthe payment of cash dividends to us by FFB would constitute an unsafe or unsound banking practice and, therefore, prohibit FFB from paying cash dividendsto us, even if FFB meets the statutory requirements to do so. See the section entitled “Dividend Policy” for additional information about our dividend policy.No public market presently exists, and there is no assurance that an active trading market will develop, for our common stock.Our common stock is not listed and does not trade on any securities exchange or in the over-the-counter market. As a result, the ability of ourshareholders to sell, and for other investors to purchase, shares of our common stock is quite limited. Consequently, investors and our existing shareholdersmay be unable to liquidate their investments in our shares if the need or desire to do so arises and, as a result, may be required to hold their sharesindefinitely. If we are able to list our shares on NASDAQ or another national securities exchange, there is no assurance that an active trading market willdevelop for our shares that would enable our shareholders to readily sell their shares if or when the need or desire to do so arises. Moreover, if the tradingmarket for our common stock ultimately proves to be limited, even after our shares are listed on an exchange, then, the limited trading market may causefluctuations in the market prices of our common stock to be exaggerated, leading to price volatility in excess of that which would occur in a more activetrading market for our common stock.If a market does develop for our common stock, market prices and trading volume of our common stock may be volatile.Even if a market develops for our common stock, the market prices of our common stock may be volatile and the trading volume may fluctuateand cause significant price variations to occur. We cannot assure you that, if a market does develop for our common stock, the market prices of our commonstock will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect the prices of ours shares or result in fluctuationsin those prices or in trading volume of our common stock could include the following, many of which are outside of our control: • quarterly variations in our operating results or the quality of our earnings or assets; • operating results that vary from the expectations of management, securities analysts, and investors; • changes in expectations as to our future financial performance; • the operating and securities price performance of other companies that investors believe are comparable to us; • our implementation of our growth strategy and performance of acquired businesses that vary from the expectations of securities analystsand investors; • the adoption of new more costly government regulations that are applicable to our businesses or the imposition of regulatory restrictionson us; • our past and future dividend practices; 29Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents • future sales of our equity or equity-related securities; • changes in global financial markets and global economies and general market conditions, such as interest rates, stock, commodity or realestate valuations or volatility; and • announcements of strategic developments, material acquisitions and other material events in our business or in the businesses of ourcompetitors.Share ownership by our officers and directors and certain agreements make it more difficult for third parties to acquire us or effectuate achange of control that might be viewed favorably by other shareholders.As of December 31, 2013, our executive officers and directors owned, in the aggregate, 34% of our outstanding shares. As a result, if the officersand directors were to oppose a third party’s acquisition proposal for, or a change in control of, FFI, the officers and directors may have sufficient voting powerto be able to block or at least delay such an acquisition or change in control from taking place, even if other shareholders would support such a sale or changeof control. In addition, a number of FFI’s officers have change of control agreements which could increase the costs and, therefore, lessen the attractiveness ofan acquisition of FFI to a potential acquiring party. See the section entitled “Executive Compensation—Change of Control Agreements” for additionalinformation about the change of control arrangements we have with certain executive officers.Our corporate governance documents, and certain corporate and banking laws applicable to us, could make a takeover attempt, which maybe beneficial to our shareholders, more difficult.Our Board of Directors, or Board, has the power, under our articles of incorporation, to issue additional shares of common stock and create andauthorize the sale of one or more series of preferred stock without having to obtain shareholder approval for such action. As a result, our Board couldauthorize the issuance of shares of a series of preferred stock to implement a shareholders rights plan (often referred to as a “poison pill”) or could sell andissue preferred shares with special voting rights or conversion rights, which could deter or delay attempts by our shareholders to remove or replacemanagement, and attempts of third parties either to engage in proxy contests or to acquire control of FFI. In addition, our charter documents: • enable our Board to fill vacant directorships except for vacancies created by the removal of a director; • enable our Board to amend our bylaws without shareholder approval subject to certain exceptions; and • require compliance with an advance notice procedure with regard to business to be brought by a shareholder before an annual or specialmeeting of shareholders and with regard to the nomination by shareholders of candidates for election as directors.Furthermore, federal and state banking laws and regulations applicable to us require prior regulatory application and approval of certaintransactions involving control of FFI or of FFB. These provisions may discourage potential acquisition proposals and could delay or prevent a change ofcontrol, including under circumstances in which our shareholders might otherwise receive a premium over the market price of our common stock.Our articles of incorporation permit our Board of Directors to authorize and sell shares of preferred stock on terms that could discourage athird party from making a takeover that may be beneficial to our shareholdersOur Board of Directors has the power, under our articles of incorporation, to create and authorize the sale of one or more series of preferred stockwithout having to obtain shareholder approval for such action. As a result, the Board could authorize the issuance of shares of a series of preferred stock toimplement a shareholders rights plan (often referred to as a “poison pill”) or could sell and issue preferred shares with special voting rights or conversionrights, which could deter or delay attempts by our shareholders to remove or replace management, and attempts of third parties either to engage in proxycontests or to acquire control of the Company. 30Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe may sell additional shares of common stock in the future which could result in dilution to our shareholders.A total of approximately 12 million authorized but unissued shares of our common stock are available for future sale and issuance by action ofour board of directors. Accordingly, our shareholders could suffer dilution in their investment in our common stock and their percentage share ownership ifwe were to sell additional shares in the future.We have elected under the JOBS Act to use an extended transition period for complying with new or revised accounting standards.We are electing to take advantage of the extended transition period afforded by the Jumpstart our Business Startups Act of 2012, or the JOBSAct, for the implementation of new or revised accounting standards. As a result, we will not be required to comply with new or revised accounting standardsthat have different effective dates for public and private companies until those standards apply to private companies or we cease to be an “emerging growth”company as defined in the JOBS Act. As a result of this election, our financial statements may not be comparable to the financial statements of companiesthat comply with public company effective dates.The reduced disclosures and relief from certain other significant disclosure requirements that are available to emerging growth companiesmay make our common stock less attractive to investors.We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from variousreporting requirements that apply to other public companies that are not “emerging growth companies.” These exemptions include the following: • not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); • less extensive disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and • exemptions from the requirements to hold nonbinding advisory votes on executive compensation and shareholder approval of anygolden parachute payments not previously approved.In addition, even if we comply with the greater obligations of public companies that are not emerging growth companies, we may avail ourselvesof the reduced requirements applicable to emerging growth companies from time to time in the future, so long as we are an emerging growth company.We will remain an emerging growth company for up to five years, though we may cease to be an emerging growth company earlier under certaincircumstances, including if, before the end of such five years, we are deemed to be a large accelerated filer under the rules of the SEC (which depends on,among other things, having a market value of common stock held by non-affiliates in excess of $700 million). If a trading market were to develop for ourshares in the future, then, because we will be relying on one or more of these exemptions, investors and securities analysts may find it more difficult toevaluate our common stock, and some investors may find our common stock less attractive, and, as a result, there may be a less active trading market for ourcommon stock, which could result in a reductions and greater volatility in the prices of our common stock. 31Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFurther, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financialaccounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a classof securities registered under the Securities Exchange Act of 1934) are required to comply with the new or revised financial accounting standards. The JOBSAct provides that a company may elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growthcompanies, but any such election to opt out will be irrevocable. We have elected not to opt out of such extended transition period which means that when astandard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new orrevised standard at the time private companies adopt the new or revised standard. This may make our financial statements not comparable with those of otherpublic companies which are neither emerging growth companies nor emerging growth companies that have opted out of using the extended transition period.Pursuant to the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of ourinternal control over financial reporting for so long as we are an “emerging growth company.”Under existing SEC rules and regulations, we will be required to disclose changes made in our internal control over financial reporting on aquarterly basis and management will be required to assess the effectiveness of our disclosure controls and our internal control over financial reportingannually. However, under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internalcontrol over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until we are no longer an “emerging growth company.”Our internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act, andfailure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could havea material adverse effect on our business and stock prices.We have not been required to maintain internal control over financial reporting in a manner that meets the standards that are made applicable topublicly traded companies under Section 404(a) of the Sarbanes-Oxley Act. Once we are no longer an “emerging growth company,” our independentregistered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting on an annual basis. The rulesgoverning the standards that must be met for our management to assess our internal control over financial reporting are complex and require significantdocumentation, testing and possible remediation, which could significantly increase our operating expenses.If we identify material weaknesses in our internal control over financial reporting in the future, or if we cannot comply with the requirements ofthe Sarbanes-Oxley Act in a timely manner or attest that our internal control over financial reporting is effective, we may not be able to report our financialresults accurately and timely. As a result, investors and clients may lose confidence in the accuracy and completeness of our financial reports; our liquidity,access to capital markets, and perceptions of our creditworthiness could be adversely affected; and the market price of our common stock could decline. Inaddition, we could become subject to investigations by the stock exchange on which our securities are listed, SEC, the Federal Reserve or the FDIC, or otherregulatory authorities, which could require additional financial and management resources. These events could have a material adverse effect on ourbusiness, financial condition, results of operations and prospects.We may also encounter problems or delays in implementing any changes necessary to make a favorable assessment of our internal control overfinancial reporting or in completing the implementation of any requested improvements that may be needed for this purpose. If we cannot favorably assessthe effectiveness of our internal control over financial reporting, investors could lose confidence in our financial information which could adversely affectthe price of our common stock.Item 1B. Unresolved Staff Comments.Not applicable. 32Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsItem 2. Properties.Our headquarters and administrative offices are located at 18101 Von Karman Avenue, Suite 700, Irvine, California 92612. In addition, weoperate seven wealth management offices located, respectively, in Newport Beach, Pasadena, West Los Angeles, Palm Desert, El Centro and San Diego,California and Las Vegas, Nevada. All of these offices are leased pursuant to non-cancelable operating leases that will expire between 2015 and 2020.Item 3. Legal Proceedings.In the ordinary course of business, we are subject to claims, counter claims, suits and other litigation of the type that generally arise from theconduct of financial services businesses. We are not aware of any threatened or pending litigation that we expect will have a material adverse effect on ourbusiness operations, financial condition or results of operations.Item 4. Mine Safety Disclosures.Not applicable. 33Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Market InformationAs of February 28, 2013, a total of 7,733,514 shares of our common stock were issued and outstanding which were held of record by 903shareholders. No shares of preferred stock had been issued or were outstanding and we do not have any current plans to sell or issue any shares of preferredstock.There is currently no public trading market or publicly available quotations for our common stock.Dividend Policy and Restrictions on the Payment of DividendsWe have not previously paid cash dividends on our common stock. It is our current intention to invest our cash flow and earnings in the growthof our businesses and, therefore, we have no plans to pay cash dividends for the foreseeable future.Additionally, our ability to pay dividends to our shareholders is subject to the restrictions set forth in the California General Corporation Law(the “CGCL”). The CGCL provides that a corporation may pay a dividend to its shareholders if the amount of the corporation’s retained earningsimmediately prior to the dividend, equals or exceeds the amount of the proposed dividend plus, if the corporation has shares of preferred stock outstanding,the amount of the unpaid accumulated dividends on those preferred shares. The CGCL further provides that, in the event that sufficient retained earnings arenot available for the proposed dividend, a corporation may nevertheless pay a dividend to its shareholders if, immediately after the dividend, the value of itsassets would equal or exceed the sum of its total liabilities plus, if the corporation has shares of preferred stock outstanding, the amount of the unpaidaccumulated dividends on those preferred shares. In addition, since we are a bank holding company subject to regulation by the Federal Reserve Board, itmay become necessary for us to obtain the approval of the FRB before we can pay cash dividends to our shareholders. In addition, the loan agreementgoverning our $7.5 million term loan requires us to obtain the prior approval of the lender for the payment by us of any dividends to our shareholders.Cash dividends from our two wholly-owned subsidiaries, First Foundation Bank and First Foundation Advisors, represent the principal source offunds available to us, which we might use to pay cash dividends to our shareholders or for other corporate purposes. Since FFA is a California corporation, thesame dividend payment restrictions, described above, that apply to us under the CGCL also apply to FFA. In addition the laws of the State of California, asthey pertain to the payment of cash dividends by California state chartered banks, limit the amount of funds that FFB would be permitted to dividend to usmore strictly than does the CGCL. In particular, under California law, cash dividends by a California state chartered bank may not exceed, in any calendaryear, the lesser of (i) the sum of its net income for the year and its retained net income from the preceding two years (after deducting all dividends paid duringthe period), or (ii) the amount of its retained earnings.Additionally, until September 2014, we are required to obtain prior approval from the FDIC before the Bank may pay any dividends. Also,because the payment of cash dividends has the effect of reducing capital, capital requirements imposed on the Bank by the DBO and the FDIC may operate,as a practical matter, to preclude the payment, or limit the amount of, cash dividends that might otherwise be permitted to be made under California law; andthe DBO and the FDIC, as part of their supervisory powers, generally require insured banks to adopt dividend policies which limit the payment of cashdividends much more strictly than do applicable state laws.Furthermore, the loan agreement governing our $7.5 million term loan requires us to obtain the prior approval of the lender for the payment byus of any dividends to our shareholders. 34Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsRestrictions on Intercompany TransactionsSections 23A and 23B of the Federal Reserve Act, and the implementing regulations thereunder, limit transactions between a bank and itsaffiliates and limit a bank’s ability to transfer to its affiliates the benefits arising from the bank’s access to insured deposits, the payment system and thediscount window and other benefits of the Federal Reserve System. Those Sections of the Act and the implementing regulations impose quantitative andqualitative limits on the ability of a bank to extend credit to, or engage in certain other transactions with, an affiliate (and a non-affiliate if an affiliatebenefits from the transaction).Equity Compensation PlansCertain information with respect to our equity compensation plans, as of December 31, 2013, is set forth in Item 12, in Part III of this Report andis incorporated herein by this reference.Recent Sales of Unregistered SecuritiesDuring 2013, we sold the following securities in transactions that were exempt from the registration requirements under the Securities Act of1933, as amended (or Securities Act):Sales of Common Stock: • In March 2013, we sold an aggregate of 38,734 shares of our common stock in a private offering to a total of 6 accredited investors at aprice of $15.00 per share in cash, which generated gross proceeds to us of $0.6 million. • In December 2013, we sold issued an aggregate 318,987 shares of our common stock in a private offering to a total of 32 accreditedinvestors at a price of $18.00 per share in cash, which generated gross proceeds to us of $5.7 million.The sales of these shares were made in reliance on the exemptions from registration under Section 4(2) of, and Regulation D and Rule 506promulgated under, the Securities Act. The sales were made solely to accredited investors exclusively by officers of FFI, for which they did not receive anycompensation (other than reimbursement for out-of-pocket expenses in accordance with FFI’s expense reimbursement policies), and no general advertising orsolicitations were employed in connection with the offer or sale of the shares. The purchasers of these shares represented their intention to acquire the sharesfor investment only, and not with a view to offer or sell any such shares in connection with any distribution of the shares, and appropriate restrictive legendswere set forth in the stock purchase agreements entered into by the investors, and on the share certificates issued, in such transactions.Grants of Stock Options and Restricted Stock. During 2013, we granted options to purchase up to 19,000 shares of our common stock at anexercise price of $15.00 per share, and up to 5,000 shares of our common stock at an exercise price of $18.00 per share and awarded 6,666 shares of restrictedshares of our common stock, the vesting of which is contingent on the continued service with the Company of the recipient over a period of three years fromthe date of grant.The issuance of shares on exercise of options and the issuances of restricted shares were deemed to be exempt from registration under theSecurities Act in reliance on either Section 4(2) of the Securities Act, including in some cases, Regulation D and Rule 506 promulgated thereunder, or Rule701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving a public offering or transactions pursuant tocompensatory benefit plans and contracts relating to compensation as provided under Rule 701. The purchasers of securities in each such transactionrepresented their intention to acquire the shares for investment only and not with a view to offer or sell any such shares in connection with any distribution ofthe securities, and appropriate legends were affixed to the share certificates and instruments issued in such transactions.In January 2014, we filed a registration statement on Form S-8 to register, under the Securities Act, the shares of common stock issuable underour Equity Incentive Plans, including the shares subject to the options and the restricted shares granted in 2013. 35Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsItem 6. Selected Financial DataWith the exception of the certain items included in the selected performance and capital ratios, the following selected consolidated financialinformation as of and for the years ended December 31, 2013 and 2012 has been derived from our audited consolidated financial statements appearingelsewhere in this Annual Report on Form 10-K, and the selected consolidated financial information as of and for the year ended December 31, 2011 has beenderived from our audited consolidated financial statements not appearing in this Annual Report on Form 10-K.You should read the following selected financial and operating data in conjunction with other information contained in this Annual Report onForm 10-K, including the information set forth in the sections entitled “Capitalization” and “Management’s Discussion and Analysis of Financial Conditionand Results of Operations”, as well as our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.The average balances used in computing certain ratios, have been computed using daily averages, except for average equity, which is computed using theaverage of beginning and end of month balances. Our historical results as set forth below are not necessarily indicative of results to be expected in any futureperiod. In addition, as described elsewhere in this Annual Report on Form 10-K, on August 15, 2012 we consummated the acquisition of DCB. The results ofoperations and other financial data of DCB for all periods prior to the date of its acquisition are not included in the table below and, therefore, our results andother financial data for these prior periods are not comparable in all respects to those for the periods subsequent to that acquisition. In addition, the incomestatement data set forth below may not be predictive of our future operating results. As of and for the Year Ended December 31, (In thousands, except share and per share data) 2013 2012(1) 2011 Selected Income Statement Data: Net interest income $35,674 $27,729 $20,141 Provision for loan losses 2,395 2,065 2,297 Noninterest Income: Asset management, consulting and other fees 18,240 15,326 13,211 Other(2) 1,584 1,294 4,489 Noninterest expense 43,622 34,476 26,446 Income before taxes 9,481 7,808 9,098 Net income 7,851 5,801 9,098 Share and Per Share Data: Net income per share: Basic $1.06 $0.88 $1.48 Diluted 1.01 0.85 1.42 Shares used in computation: Basic 7,424,210 6,603,533 6,164,283 Diluted 7,742,215 6,831,955 6,393,713 Tangible book value per share(3) $11.18 $9.94 $7.98 Shares outstanding at end of period(4) 7,733,514 7,366,126 6,166,574 Selected Balance Sheet Data: Cash and cash equivalents $56,954 $63,108 $10,098 Loans, net of deferred fees 903,645 743,627 524,103 Allowance for loan and lease losses (“ALLL”) (9,915) (8,340) (6,550) Total assets 1,037,360 830,509 551,584 Noninterest-bearing deposits 217,782 131,827 66,383 Interest-bearing deposits 584,255 517,914 340,443 Borrowings(5) 141,603 100,000 91,000 Shareholders’ equity(4) 86,762 73,580 49,197 Selected Performance and Capital Ratios: Return on average assets 0.86% 0.80% 1.91% Return on average equity 10.2% 9.9% 20.7% Net yield on interest-earning assets 4.06% 4.20% 4.43% Efficiency ratio(6) 78.6% 77.7% 77.4% Noninterest income as a % of total revenues 35.7% 37.5% 46.8% 36Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents As of and for the Year Ended December 31, (In thousands, except share and per share data) 2013 2012(1) 2011 Tangible common equity to tangible assets(3) 8.34% 8.82% 8.92% Tier 1 leverage ratio 8.67% 9.19% 8.92% Tier 1 risk-based capital ratio 13.04% 13.60% 13.54% Total risk-based capital ratio 14.30% 14.85% 14.80% Other Information: Assets under management (end of period) $2,594,961 $2,229,116 $1,827,436 NPAs to total assets 0.32% 0.17% 0.00% Charge-offs to average loans 0.10% 0.04% 0.05% Ratio of ALLL to loans(7) 1.16% 1.25% 1.25% Number of wealth management offices 7 6 4 (1)Includes the results of operations of DCB for the period from the date of its acquisition on August 15, 2012 to December 31, 2012. (2)2011 amount includes a $3.7 million gain on the sale of other real estate owned. (3)Tangible common equity, (also referred to as tangible book value) and tangible assets, are equal to common equity and assets, respectively, less $0.3 million of intangible assetsas of December 31, 2013 and December 31, 2012. As of December 31, 2011, we did not have any intangible assets. (4)In December 2013, we sold and issued 318,987 shares of our common stock, at a price of $18 per share, in a private offering. We sold a total of 413,172 shares in a privateoffering, at a price of $15 per share, of which 374,438 were sold and issued in 2012 and 38,734 shares were sold and issued in 2013. Effective August 15, 2012, we issued atotal of 815,447 shares of our common stock, valued at $15.00 per share, to the former DCB shareholders in our acquisition of DCB in exchange for all of the outstandingshares of DCB. (5)Borrowings consist primarily of overnight and short-term advances obtained by FFB from the Federal Home Loan Bank. (6)The efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income. (7)This ratio excludes loans acquired in our acquisition of DCB, as generally accepted accounting principles in the United States, or GAAP, requires estimated credit losses foracquired loans to be recorded as discounts to those loans. 37Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis is intended to facilitate the understanding and assessment of significant changes and trends in our resultsof operations in the year ended, and our financial condition at, December 31, 2013, as compared to our results of operation in and our financial condition atDecember 31, 2012. This discussion and analysis is based on and should be read in conjunction with our consolidated financial statements and theaccompanying notes thereto contained elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations. Some ofthe factors that could cause results to differ materially from expectations are discussed in the sections entitled “Risk Factors” and “Cautionary NoteRegarding Forward-Looking Statements” contained elsewhere in this Annual Report on Form 10-K.Critical Accounting PoliciesOur 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 tomake estimates and assumptions regarding circumstances or trends that could materially affect the value of those assets, such as economic conditions ortrends that could impact our ability to fully collect our loans or ultimately realize the carrying value of certain of our other assets. Those estimates andassumptions are made based on current information available to us regarding those economic conditions or trends or other circumstances. If changes were tooccur in the events, trends or other circumstances on which our estimates or assumptions were based, or other unanticipated events were to occur that mightaffect 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 balancesheet, generally by means of charges against income, which could also affect our results of operations in the fiscal periods when those charges are recognized.Utilization and Valuation of Deferred Income Tax Benefits. We record as a “deferred tax asset” on our balance sheet an amount equal to the taxcredit and tax loss carryforwards and tax deductions (collectively “tax benefits”) that we believe will be available to us to offset or reduce income taxes infuture periods. Under applicable federal and state income tax laws and regulations, tax benefits related to tax loss carryforwards will expire if they cannot beused within specified periods of time. Accordingly, the ability to fully use our deferred tax asset related to tax loss carryforwards to reduce income taxes inthe 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, wemake 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 estimatesand 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 theirexpiration, 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 amountof 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 stillmore 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 anexisting valuation allowance, would be effectuated through a charge to the provision for income taxes or a reduction in any income tax credit for the periodin which such valuation allowance is established or increased.Allowance for Loan and Lease Losses. Our ALLL is established through a provision for loan losses charged to expense and may be reduced by arecapture of previously established loss reserves, which are also reflected in the statement of income. Loans are charged against the ALLL when managementbelieves that collectability of the principal is unlikely. The ALLL is an amount that management believes will be adequate to absorb estimated losses onexisting loans that may become uncollectible based on an evaluation of the collectability of loans and prior loan loss experience. This evaluation also takesinto consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, currenteconomic conditions and certain other subjective factors that may affect the borrower’s ability to pay. While we use the best information available to makethis evaluation, future adjustments to our ALLL may be necessary if there are significant changes in economic or other conditions that can affect thecollectability in full of loans in our loan portfolio. 38Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAdoption of new or revised accounting standards. We have elected to take advantage of the extended transition period afforded by the JOBSAct, for the implementation of new or revised accounting standards. As a result, we will not be required to comply with new or revised accounting standardsthat have different effective dates for public and private companies until those standards apply to private companies or we cease to be an “emerging growth”company as defined in the JOBS Act. As a result of this election, our financial statements may not be comparable to the financials statements of companiesthat comply with public company effective dates.We have two business segments, “Banking” and “Investment Management, Wealth Planning and Consulting” (“Wealth Management”). Bankingincludes the operations of FFB and FFIS 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.Recent Developments and OverviewOn April 19, 2013, we entered into a term loan note agreement with an unaffiliated bank lender under which we borrowed $7.5 million. Theseborrowings bear interest at a rate equal to ninety day Libor plus 4.0% per annum. The term of the loan is five years. The loan agreement requires us to makemonthly payments of principal and interest, the amounts of which are determined on the basis of a 10 year amortization schedule, with a final payment of theunpaid principal balance, in the amount of $3.8 million plus accrued but unpaid interest, at the maturity date of the loan in May 2018. We have the right, inour discretion, to prepay the loan at any time in whole or, from time to time, in part, without any penalties or premium. We are required to meet certainfinancial covenants during the term of the loan. As security for our repayment of the loan, we pledged all of the common stock of FFB to the lender. See“Financial Condition—Term Loan” below for additional information regarding this loan.We opened a wealth management office in Las Vegas in the second quarter of 2013 and we moved into our permanent 10,000 square foot leasedoffice in the third quarter of 2013. In the fourth quarter of 2013, we relocated our Irvine wealth management office to a 2,900 square foot leased office inNewport Beach, California.On August 15, 2012, we completed the acquisition of DCB in exchange for the issuance of 815,447 shares of common stock, valued at $15.00per share. As a result of the DCB Acquisition, FFB acquired $35 million of cash, $9 million of securities, $90 million of loans, $6 million of deferred taxesand other assets, and assumed $127 million of deposits along with the operations of DCB. In addition, FFB acquired branches in Palm Desert and El Centro,California. During the first quarter of 2013, we finished the integration of DCB into our operations.We have continued to grow both our Banking and Wealth Management operations. Comparing 2013 to 2012, we have increased our revenues(net interest income and noninterest income) by 25%. This growth in revenues is the result of the growth in FFB’s total interest-earning assets and in AUM inWealth Management.During 2013, total loans and total deposits in Banking increased 22% and 23%, respectively, while the AUM in Wealth Management increasedby $366 million or 16% and totaled $2.59 billion as of December 31, 2013. The growth in AUM includes the addition of $242 million of net new accountsand $237 million of gains realized in client accounts during 2013.The results of operations for Banking reflect the benefits of this growth as income before taxes for Banking increased $2.7 million from $10.0million in 2012 to $12.7 million in 2013. Because we continue to add new staff and locations as part of our business plan, the increases in our revenues inWealth Management were offset by increases in noninterest expenses. On a consolidated basis, our earnings before taxes increased from $7.8 million in 2012to $9.5 million in 2013 as the increase from Banking was offset by a $1.0 million increase in corporate expenses in 2013 as compared to 2012. 39Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsResults of OperationsYears Ended December 31, 2013 and 2012.Our net income for 2013 was $7.9 million, as compared to $5.8 million for 2012. The proportional increase in net income was more than theproportional increase in income before taxes because of a decrease in our effective tax rate from 26% in 2012 to 17% in 2013. In 2013 and 2012, thevaluation allowance for deferred taxes was reduced by $2.4 million and $1.0 million, respectively, resulting in lower effective tax rates as compared to anormalized income tax provision of 42%.Income before taxes was $9.5 million in 2013 as compared to $7.8 million in 2012. The following is a comparison of our income before taxesbetween 2013 and 2012.The following tables show key operating results for each of our business segments for the years ended December 31: (dollars in thousands) Banking WealthManagement Other Total 2013: Interest income $39,181 $- $- $39,181 Interest expense 3,288 - 219 3,507 Net interest income 35,893 - (219) 35,674 Provision for loan losses 2,395 - - 2,395 Noninterest income 3,514 16,715 (405) 19,824 Noninterest expense 24,302 17,400 1,920 43,622 Income (loss) before taxes on income $12,710 $(685) $(2,544) $9,481 2012: Interest income $30,874 $- $- $30,874 Interest expense 3,145 - - 3,145 Net interest income 27,729 - - 27,729 Provision for loan losses 2,065 - - 2,065 Noninterest income 2,599 14,250 (229) 16,620 Noninterest expense 18,280 14,896 1,300 34,476 Income (loss) before taxes on income $9,983 $(646) $(1,529) $7,808 The primary sources of revenue for Banking are net interest income, fees from its deposits, trust and insurance services, and certain loan fees. Theprimary sources of revenue for Wealth Management are asset management fees assessed on the balance of AUM and fees charged for consulting andadministrative services. Compensation and benefit costs, which represent the largest component of noninterest expense accounted for 62% and 76%,respectively, of the total noninterest expense for Banking and Wealth Management in 2013.General. As a result of an increase in income before taxes for Banking, which was partially offset by an increase in corporate expenses,consolidated income before taxes increased $1.7 million in 2013 as compared to 2012. Income before taxes in Banking was $2.7 million higher in 2013 ascompared to 2012 as higher net interest income and higher noninterest income was partially offset by a higher noninterest expenses. The loss before taxes forWealth Management for 2013 was comparable to the loss for 2012 as increases in noninterest income were offset by increases in noninterest expenses. Ouroperating losses in Wealth Management are due in part to our continued investment in new relationship managers which are a key component in growing ourrevenues. Typically, it takes up to three years to realize enough revenues to cover the costs associated with hiring and retaining a new relationship manager.Corporate expenses were $1.0 million higher in 2013 as compared to 2012 due to increased sales and marketing activities, increased allocations ofcompensation costs from FFB and interest costs on the term loan. 40Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsNet Interest Income. The following tables set forth information regarding (i) the total dollar amount of interest income from interest-earningassets 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-bearingliabilities; (iii) net interest income; (iv) net interest rate spread; and (v) net yield on interest-earning assets for the year ended December 31: 2013 2012 (dollars in thousands) AverageBalances Interest AverageYield /Rate AverageBalances Interest AverageYield /Rate Interest-earning assets: Loans $803,808 $37,918 4.72% $626,866 $30,552 4.87% Securities 37,325 864 2.31% 16,047 193 1.20% Fed funds and deposits 37,918 399 1.05% 17,346 129 0.75% Total interest-earning assets 879,051 39,181 4.46% 660,259 30,874 4.68% Noninterest-earning assets: Nonperforming assets 2,778 1,232 Other 18,875 12,631 Total assets $900,704 $674,122 Interest-bearing liabilities: Demand deposits $165,736 856 0.52% $43,776 251 0.58% Money market and savings 99,826 434 0.44% 92,404 516 0.56% Certificates of deposit 279,470 1,877 0.67% 283,677 2,151 0.76% Total interest-bearing deposits 545,032 3,167 0.58% 419,857 2,918 0.70% Borrowings 84,409 340 0.40% 99,257 227 0.23% Total interest-bearing liabilities 629,441 3,507 0.56% 519,114 3,145 0.61% Noninterest-bearing liabilities: Demand deposits 186,760 92,641 Other liabilities 7,813 4,970 Total liabilities 824,014 616,725 Stockholders’ equity 76,690 57,397 Total liabilities and equity $900,704 $674,122 Net Interest Income $35,674 $27,729 Net Interest Rate Spread 3.90% 4.07% Net Yield on Interest-earning Assets 4.06% 4.20% 41Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsNet interest income is impacted by the volume (changes in volume multiplied by prior rate), interest rate (changes in rate multiplied by priorvolume) and mix of interest-earning assets and interest-bearing liabilities. The following table provides a breakdown of the changes in net interest incomedue to volume and rate changes between 2013 as compared to 2012. Increase (Decrease) due to Net Increase(Decrease) (dollars in thousands) Volume Rate Interest earned on: Loans $8,373 $(1,007) $7,366 Securities 396 275 671 Fed funds and deposits 201 69 270 Total interest-earning assets 8,970 (663) 8,307 Interest paid on: Demand deposits 634 (29) 605 Money market and savings 39 (121) (82) Certificates of deposit (32) (242) (274) Borrowings (38) 151 113 Total interest-bearing liabilities 603 (241) 362 Net interest income $8,367 $(422) $7,945 Net interest income increased 29% from $27.7 million in 2012 to $35.7 million in 2013 because of a 33% increase in interest-earning assets andbecause we realized $1.1 million of interest income in 2013 on the net recovery of mark to market adjustments related to payoffs of acquired loans, whichwere partially offset by a decrease in our net interest rate spread. Excluding this net recovery, the yield on total interest-earning assets would have been4.34%, the net interest rate spread would have been 3.78% and the net yield on interest-earning assets would have been 3.94% in 2013. Excluding the netrecovery on acquired loans, the decrease in the net interest rate spread from 4.07% in 2012 to 3.94% in 2013 was due to a decrease in yield on total interest-earning assets which was partially offset by a decrease in rates paid on interest-bearing liabilities. The decrease in yield on interest-earning assets reflected thedecrease in interest rates in the overall market, prepayments of higher yielding loans, and an increase in the proportion of lower yielding securities anddeposits to total interest-earning assets. The decrease in rates on interest-bearing liabilities from 0.61% in 2012 to 0.56% in 2013 was due to decreases inmarket interest rates on deposits which were partially offset by increased borrowing costs related to interest on the FFI term loan.Provision for loan losses. The provision for loan losses represents our determination of the amount necessary to be charged against the currentperiod’s earnings to maintain the ALLL at a level that is considered adequate in relation to the estimated losses inherent in the loan portfolio. The provisionfor loan losses is impacted by changes in loan balances as well as changes in estimated loss assumptions and charge-offs and recoveries. The amount of ourprovision also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specificproblem loans, current economic conditions and certain other subjective factors that may affect the ability of borrowers to meet their repayment obligationsto us. The provision for loan losses was $2.4 million for 2013 and $2.1 million for 2012. The increase in the provision for loan losses in 2013 as compared to2012 was the result of higher loan balances and a $0.5 million increase in charge-offs which were partially offset by reductions in estimated loss assumptions. 42Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsNoninterest income. Noninterest income for Banking includes fees charged to clients for trust services and deposit services, prepayment and latefees charged on loans and intercompany fees charged for services provided to Wealth Management. The following table provides a breakdown of noninterestincome for Banking for the years ended December 31: (dollars in thousands) 2013 2012 Trust fees $1,785 $1,170 Deposit charges 366 143 Prepayment fees 846 779 Other 517 507 Total noninterest income $3,514 $2,599 The $0.9 million increase in noninterest income for Banking in 2013, as compared to 2012 was due primarily to higher trust fees. The increase intrust fees reflects the continuing growth of the trust operations as evidenced by the higher level of trust AUM, which has increased to $341 million as ofDecember 31, 2013.Noninterest income for Wealth Management includes fees charged to high net-worth clients for managing their assets and for providing financialplanning consulting services, as well as fees for administration services provided to family foundations and private charitable organizations. The followingtable provides a breakdown of noninterest income for Wealth Management for the years ended December 31: (dollars in thousands) 2013 2012 Asset management fees $15,560 $12,983 Consulting and administration fees 1,164 1,341 Other (9) (74) Total noninterest income $16,715 $14,250 The $2.5 million increase in noninterest income in Wealth Management in 2013, as compared to 2012 was primarily due to increases in assetmanagement fees of 20%. That increase was primarily due to the 19% increase in the AUM balances used for computing the asset management fees in 2013 ascompared to 2012.Noninterest Expense. The following table provides a breakdown of noninterest expense for Banking and Wealth Management for the yearsended December 31: Banking Wealth Management (dollars in thousands) 2013 2012 2013 2012 Compensation and benefits $14,971 $11,208 $13,176 $11,673 Occupancy and depreciation 4,568 3,656 1,922 1,393 Professional services and marketing 1,752 1,000 1,536 1,179 Other expenses 3,011 2,416 766 651 Total noninterest expense $24,302 $18,280 $17,400 $14,896 The $6.0 million increase in noninterest expense in Banking during 2013 as compared to 2012 was due primarily to increases in staffing andcosts associated with FFB’s higher balances of loans and deposits and our continuing expansion, including the DCB Acquisition in August 2012.Compensation and benefits for Banking increased $3.8 million during 2013 as compared 2012 as the number of full-time equivalent employees, (“FTE”) inBanking increased to 123.1 during 2013 from 87.9 during 2012. The $0.9 million increase in occupancy and depreciation costs for Banking during 2013 ascompared to 2012 was due to the four additional offices being open at some time during 2013 as compared to 2012 and the expansion into additional spaceat the administrative office in the second quarter of 2013. Those increases were partially offset by reduced operating system costs relating to $0.6 million 43Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsof costs incurred in 2012 as part of FFB’s conversion to a new core processing system. Professional services and marketing for Banking, which includes costsfor legal, accounting, consulting and information technology services, as well as management fees paid to FFA for providing asset management services forFFB’s trust clients, increased $0.8 million during 2013 as compared to 2012. This increase was due primarily to additional consulting and legal costsincurred in relation to strategic activities of FFB and an increase in asset management fees related to trust clients. Other expenses for Banking, which includeoffice related costs, FDIC and other regulatory assessments, director fees, insurance costs, loan related expenses, employee reimbursements and REOexpenses, increased 0.6 million during 2013 as compared to 2012. This increase was primarily due to a $0.3 million charge to REO reserves in 2013 and $0.1million increases in employee reimbursements and in loan related expenses, both of which were related to our continued growth.The $2.5 million increase in noninterest expense in Wealth Management during 2013 as compared to 2012 was primarily due to increases instaffing and costs associated with our continuing expansion and growth. Compensation and benefits for Wealth Management increased $1.5 million during2013 as compared to 2012 as the number of FTE in Wealth Management increased to 53.4 during 2013 from 44.7 during 2012. The $0.5 million increase inoccupancy and depreciation costs for Wealth Management during 2013 as compared to 2012 was due to additional offices being open during all or a portionof 2013 as compared to 2012 and $0.2 million of costs incurred related to an upgrade of our asset management operating system. Professional services andmarketing for Wealth Management, which includes costs for legal, accounting and information technology services, as well as recurring referral fees paid tothird parties, increased $0.4 million during 2013 as compared to 2012. This $0.4 million increase was due primarily to higher referral fees related to theincreased asset management fees and higher recruiting fees paid related to the increase in staffing during 2013. Other expenses for Wealth Management,which include office related costs, insurance costs and employee reimbursements did not change significantly in 2013 as compared to 2012. 44Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsYears Ended December 31, 2012 and 2011.Our net income for 2012 was $5.8 million, as compared to $9.1 million for 2011. The proportional decrease in net income was greater than theproportional decrease in income before taxes because of an increase in our effective tax rate from 0% in 2011 to 26% in 2012. In 2012 and 2011, thevaluation allowance for deferred taxes was reduced by $1.0 million and $3.6 million, respectively, resulting in lower effective tax rates as compared to anormalized income tax provision of 42%.Income before taxes was $7.8 million in 2012 as compared to $9.1 million in 2011. The following is a comparison of our income before taxesbetween 2012 and 2011.The following tables show key operating results for each of our business segments for the years ended December 31: (dollars in thousands) Banking WealthManagement Other Total 2012: Interest income $30,874 $- $- $30,874 Interest expense 3,145 - - 3,145 Net interest income 27,729 - - 27,729 Provision for loan losses 2,065 - - 2,065 Noninterest income 2,599 14,250 (229) 16,620 Noninterest expense 18,280 14,896 1,300 34,476 Income (loss) before taxes on income $9,983 $(646) $(1,529) $7,808 2011: Interest income $23,022 $- $- $23,022 Interest expense 2,881 - - 2,881 Net interest income 20,141 - - 20,141 Provision for loan losses 2,297 - - 2,297 Noninterest income 5,094 12,719 (113) 17,700 Noninterest expense 12,137 13,027 1,282 26,446 Income (loss) before taxes on income $10,801 $(308) $(1,395) $9,098 The primary sources of revenue for Banking are net interest income and fees from its deposit, trust and insurance services. The primary sources ofrevenue for Wealth Management are asset management fees assessed on the balance of AUM and fees charged for consulting and administrative services. For2012, compensation and benefits comprised 61% and 78%, respectively, of the total noninterest expense for Banking and Wealth Management, respectively.General: In 2011, FFB realized a $3.7 million gain on sale of REO which is included in noninterest income in Banking. Excluding the gain onsale of REO, income before taxes for Banking increased to $10.0 million in 2012 from $7.1 million in 2011 due primarily to higher net interest income andhigher noninterest income which were partially offset by higher noninterest expenses. The net loss before taxes in Wealth Management increased to $0.6million in 2012 from $0.3 million in 2011 as higher noninterest expenses in 2012 were only partially offset by higher asset management fees. 45Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsNet Interest Income: The following tables set forth information regarding (i) the total dollar amount of interest income from interest-earningassets 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-bearingliabilities; (iii) net interest income; (iv) net interest rate spread; and (v) net yield on interest-earning assets for the years ended December 31: 2012 2011 (dollars in thousands) AverageBalances Interest AverageYield /Rate AverageBalances Interest AverageYield /Rate Interest-earning assets: Loans $626,866 $30,552 4.87% $436,247 $22,864 5.24% Securities 16,047 193 1.20% 9,710 135 1.35% Fed funds and deposits 17,346 129 0.75% 8,902 23 0.26% Total interest-earning assets 660,259 30,874 4.68% 454,859 23,022 5.06% Noninterest-earning assets: Nonperforming assets 1,232 467 Other 12,631 3,876 Total assets $674,122 $459,202 Interest-bearing liabilities: Demand deposits $43,776 251 0.58% $11,375 74 0.65% Money market and savings 92,404 516 0.56% 60,844 405 0.67% Certificates of deposit 283,677 2,151 0.76% 225,263 2,312 1.03% Total interest-bearing deposits 419,857 2,918 0.70% 297,482 2,791 0.94% Borrowings 99,257 227 0.23% 60,375 90 0.15% Total interest-bearing liabilities 519,114 3,145 0.61% 357,857 2,881 0.81% Noninterest-bearing liabilities: Demand deposits $92,641 $59,650 Other liabilities 4,970 2,641 Total liabilities 616,725 420,148 Stockholders’ equity 57,397 39,054 Total liabilities and equity $674,122 $459,202 Net Interest Income $27,729 $20,141 Net Interest Rate Spread 4.07% 4.26% Net Yield on Interest-earning Assets 4.20% 4.43% 46Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsNet interest income is impacted by the volume (changes in volume multiplied by prior rate), interest rate (changes in rate multiplied by priorvolume) and mix of interest-earning assets and interest-bearing liabilities. The following table provides a breakdown of the changes in net interest incomedue to volume and rate changes between 2012 as compared to corresponding period in 2011. Increase (Decrease) due to Net Increase (Decrease) (dollars in thousands) Volume Rate Interest earned on: Loans $9,406 $(1,718) $7,688 Securities 78 (20) 58 Fed funds and deposits 35 71 106 Total interest-earning assets 9,519 (1,667) 7,852 Interest paid on: Demand deposits 186 (9) 177 Money market and savings 186 (75) 111 Certificates of deposit 528 (689) (161) Borrowings 75 62 137 Total interest-bearing liabilities 975 (711) 264 Net interest income $8,544 $(956) $7,588 The yield on interest-earning assets and the rate on interest-bearing liabilities have been impacted by the continuing decreases in market interestrates, which resulted in a 37 basis point decrease in the yield on average loans and a 20 basis point decrease in the rate paid on interest-bearing liabilities in2012 as compared to 2011. Because the decrease in our yield on loans was greater than our decrease in the rate on interest-bearing liabilities, our net interestrate spread decreased to 4.07% in 2012 as compared to 4.26% in 2011. Because the loans and deposits acquired in the DCB Acquisition were valued at fairvalue, the results related to the assets acquired and liabilities assumed in the DCB Acquisition did not have a significant impact on our net yield on interest-earning assets in 2012.Provision for loan losses: Our provision for loan losses in 2012 was $2.1 million as compared to $2.3 million in 2011 because the increase in ournet loans in 2012, excluding the loans acquired in the DCB Acquisition, was 24% less than the increase in our net loans in 2011. The impact of this decreasewas partially offset by a $0.3 million increase in net charge-offs in 2012 as compared to 2011. Under accounting guidelines, FFB is required to provide acalculated reserve for loan losses for its outstanding loan balances, including those acquired in the DCB Acquisition. However, these guidelines also requireFFB to record the calculated reserve for acquired loans as a reduction of the carrying balance of those loans on the date they are acquired, and then amortizethis calculated reserve into income for each loan over the life of the loan. Therefore, the ALLL represents the estimated credit losses of all loans not acquiredin the DCB Acquisition, plus any deficiency in the estimated credit losses, which is included as a reduction of the carrying balance of those loans, for theloans acquired in the DCB Acquisition. Excluding the loans acquired in the DCB Acquisition, FFB’s ALLL levels at December 31, 2012 and 2011 equaled1.25% of the respective loan balances then outstanding.Noninterest income: The following table provides a breakdown of noninterest income for Banking for the years ended December 31: (dollars in thousands) 2012 2011 Trust fees $1,170 $555 Prepayment fees 779 208 Gain on sale of REO - 3,695 Other 650 636 Total noninterest income $2,599 $5,094 47Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDuring 2009, FFB foreclosed on properties securing two participation loans, with a book value of $3.6 million, resulting in a $0.3 millioncharge-off and the transfer of the remaining outstanding balances to REO. Subsequently, FFB recorded $1.9 million and $1.4 million provisions for REOlosses related to these properties in 2010 and 2009, respectively. During 2011, we reached a settlement agreement with the bank which sold us theseparticipation loans. As a result of the settlement we transferred the properties to the other bank and recognized a $3.7 million gain on sale of REO in 2011.Excluding the $3.7 million gain on sale of REO recognized in 2011, the $1.2 million increase in noninterest income in Banking for 2012, ascompared to 2011, was due to increased activity levels in the trust operations of FFB as well as increased fees related to the prepayment of loans. Trust AUMincreased from $135 million at the beginning of 2011 to $309 million at the end of 2012. Loan prepayments totaled $116 million in 2012 as compared to$61 million in 2011.The following table provides a breakdown of noninterest income for Wealth Management for the years ended December 31: (dollars in thousands) 2012 2011 Asset management fees $12,983 $11,338 Consulting and administration fees 1,341 1,393 Other (74) (12) Total noninterest income $14,250 $12,719 Asset management fees increased by 15% in 2012 as compared to 2011 due to a 21% increase in the average billable AUM which was partiallyoffset by a decrease in the weighted average investment advisory fee rate. At December 31, 2012, AUM totaled $2.23 billion as compared to $1.83 billion atDecember 31, 2011 and $1.56 billion at December 31, 2010.Noninterest Expense: The following table provides a breakdown of noninterest expense for Banking and Wealth Management for the yearsended December 31: Banking Wealth Management (dollars in thousands) 2012 2011 2012 2011 Compensation and benefits $11,208 $7,808 $11,673 $10,091 Occupancy and depreciation 3,656 1,786 1,393 1,226 Professional services and marketing 1,000 501 1,179 1,231 Other expenses 2,416 2,042 651 479 Total noninterest expense $18,280 $12,137 $14,896 $13,027 The increase in noninterest expense in Banking during 2012 as compared to 2011 was due to increases in staffing, increases in noninterestexpenses as a result of the DCB Acquisition and costs associated with our higher balances of loans and deposits. Compensation and benefits increased $3.4million in 2012 as compared to 2011 as the number of FTE in Banking increased to 87.9 FTE during 2012 as compared to 58.6 FTE during 2011. Theincrease in staffing was primarily due to the opening of our new office in West Los Angeles and increased staffing related to the DCB Acquisition. The $1.9million increase in occupancy and depreciation for Banking in 2012 as compared to 2011 reflects the facility costs for those branches acquired or opened in2012 as well as the full year of costs related to the branch and corporate expansions that occurred in 2011. The $0.5 million increase in professional servicesand marketing for Banking in 2012 as compared to 2011 was due to costs related to our increased activities, including information technology upgrades andprojects and increased management fees paid on trust AUM. The $0.4 million increase in other expenses in 2012 as compared to 2011 reflects costs related toour continuing growth including FDIC insurance premiums and general office costs. 48Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe $1.9 million increase in noninterest expenses in Wealth Management during 2012 as compared to 2011 was primarily due to $1.6 million ofhigher compensation and benefits costs resulting from increased staffing associated with opening of our new office in West Los Angeles and increasedincentive compensation related to the growth in AUM. Staffing for Wealth Management increased to 44.7 FTE in 2012 from 42.0 FTE in 2011.Financial ConditionThe following table shows the financial position for each of our business segments, and of FFI and elimination entries used to arrive at ourconsolidated totals which are included in the column labeled Other, at December 31: (dollars in thousands) Banking WealthManagement Other andEliminations Total 2013: Cash and cash equivalents $56,795 $2,134 $(1,975) $56,954 Securities AFS 59,111 - - 59,111 Loans, net 893,364 366 - 893,730 Premises and equipment 2,286 863 100 3,249 FHLB Stock 6,721 - - 6,721 Deferred taxes 11,426 865 (239) 12,052 REO 375 - - 375 Other assets 3,840 717 611 5,168 Total assets $1,033,918 $4,945 $(1,503) $1,037,360 Deposits $809,306 $- $(7,269) $802,037 Borrowings 134,000 - 7,063 141,063 Intercompany balances 857 248 (1,105) - Other liabilities 4,018 2,590 890 7,498 Shareholders’ equity 85,737 2,107 (1,082) 86,762 Total liabilities and equity $1,033,918 $4,945 $(1,503) $1,037,360 2012: Cash and cash equivalents $62,965 $1,895 $(1,752) $63,108 Securities AFS 5,813 - - 5,813 Loans, net 734,778 509 - 735,287 Premises and equipment 1,661 657 66 2,384 FHLB Stock 8,500 - - 8,500 Deferred taxes 8,734 981 340 10,055 REO 650 - - 650 Other assets 3,509 638 565 4,712 Total assets $826,610 $4,680 $(781) $830,509 Deposits $653,671 $- $(3,930) $649,741 Borrowings 100,000 - - 100,000 Intercompany balances 1,451 205 (1,656) - Other liabilities 3,302 2,168 1,718 7,188 Shareholders’ equity 68,186 2,307 3,087 73,580 Total liabilities and equity $826,610 $ 4,680 $(781) $830,509 Our consolidated balance sheet is primarily affected by changes occurring in our Banking operations as our Wealth Management operations donot maintain significant levels of assets. Banking has experienced and is expected to continue to experience increases in its total assets as a result of ourgrowth strategy. 49Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDuring 2013, total assets for the Company and FFB increased by $207 million. For FFB, during 2013, loans and deposits increased $160.2million and $155.6 million, respectively, cash and cash equivalents decreased by $6.2 million, securities AFS increased by $53.3 million and FHLBadvances increased by $34.0 million. Borrowings at FFI increased by $7.1 million during 2013. During 2012, our consolidated total assets increased by$278.9 million primarily due to a $278.0 million increase in assets at FFB. As a result of the DCB Acquisition, FFB’s total assets and deposits increased$139.9 million and $126.9 million, respectively, in 2012. Excluding the DCB Acquisition, loans and deposits at FFB increased $129.6 million and $116.9million, respectively during 2012.Cash and cash equivalents, certificates of deposit and securities: Cash and cash equivalents, which primarily consist of funds held at the FederalReserve Bank or at correspondent banks, including fed funds, decreased $6.2 million during 2013. Changes in cash equivalents are primarily affected by thefunding of loans, investments in securities, and changes in our sources of funding: deposits, FHLB advances and FFI borrowings. The $53.0 million increasein cash and cash equivalents during 2012 includes the $34.9 million received in the DCB Acquisition.Securities available for sale: The following table provides a summary of the Company’s AFS securities portfolio at December 31: Amortized Gross Unrealized Estimated (dollars in thousands) Cost Gains Losses Fair Value 2013: US Treasury security $300 $ - $- $300 FNMA and FHLB Agency notes 10,496 - (716) 9,780 Agency mortgage-backed securities 50,983 - (1,952) 49,031 Total $61,779 $ - $(2,668) $59,111 2012: US Treasury Securities $300 $ - $ - $300 FHLB Agency Notes 5,513 - - 5,513 Total $5,813 $- $- $5,813 The US Treasury Securities are pledged as collateral to the State of California to meet regulatory requirements related to FFB’s trust operations.The $53.3 million increase in AFS Securities reflected our actions to increase our on-balance sheet sources of liquidity. 50Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe scheduled maturities of securities AFS, other than agency mortgage backed securities, and the related weighted average yield is as follows asof December 31, 2013: (dollars in thousands) Less than 1 Year 1 Through 5 years 5 Through 10 Years After10 Years Total Amortized Cost: US Treasury securities $300 $ - $- $ - $300 FNMA and FHLB Agency notes - - 10,496 - 10,496 Total $300 $- $10,496 $ - $10,796 Weighted average yield 0.21% 0.00% 1.78% 0.00% 1.74% Estimated Fair Value: US Treasury securities $300 $- $- $- $300 FNMA and FHLB Agency notes - - 9,780 - 9,780 Total $300 $- $9,780 $- $10,080 Agency mortgage backed securities are excluded from the above table because such securities are not due at a single maturity date. The weightedaverage yield of the agency mortgage backed securities as of December 31, 2013 was 2.63%.Loans. The following table sets forth our loans, by loan category, as of December 31: (dollars in thousands) 2013 2012 Outstanding principal balance: Loans secured by real estate: Residential properties: Multifamily $405,984 $367,412 Single family 227,096 155,864 Total real estate loans secured by residential properties 633,080 523,276 Commercial properties 154,982 132,217 Land 3,794 7,575 Total real estate loans 791,856 663,068 Commercial and industrial loans 93,255 67,920 Consumer loans 18,484 12,585 Total loans 903,595 743,573 Premiums, discounts and deferred fees and expenses 50 54 Total $903,645 $743,627 The $160.0 million increase in loans during 2013 was the result of loan originations and funding of existing credit commitments of $353.4million, offset by $193.4 million of payoffs and scheduled principal payments. During 2012, the $219.5 million increase in loans was the result of $90.1million in loans acquired in the DCB Acquisition and loan originations and funding of existing credit commitments of $279.4 million, partially offset by$150.0 million of payoffs and scheduled principal payments. 51Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe scheduled maturities, as of December 31, 2013, of the performing loans categorized as land loans and as commercial and industrial loans, areas follows: Scheduled Maturity Loans With a ScheduledMaturity After One Year (dollars in thousands) Due in One Year or Less Due After One Year ThroughFive Years Due After Five Years Loans With Fixed Rates Loan With Adjustable Rates Land loans $2,933 $19 $842 $19 $842 Commercial and industrial loans $50,272 $17,968 $24,671 $41,775 $864 Deposits: The following table sets forth information with respect to our deposits and the average rates paid on deposits, as of December 31: 2013 2012 (dollars in thousands) Amount WeightedAverage Rate Amount WeightedAverage Rate Demand deposits: Noninterest-bearing $217,782 - $131,827 - Interest-bearing 217,129 0.504% 103,085 0.558% Money market and savings 121,260 0.499% 91,278 0.488% Certificates of deposits 245,866 0.606% 323,551 0.732% Total $802,037 0.398% $649,741 0.522% The $152.3 million increase in deposits during 2013 and, excluding the $126.9 million in deposits acquired in the DCB Acquisition, the $116.9million increase in deposits during 2012, reflects the organic growth of our Banking operations.As market interest rates have continued to decline, FFB has been able to lower the cost of its deposit products. As a result, the weighted averagerate of interest-bearing deposits has decreased from 0.65% at December 31, 2012 to 0.55% at December 31, 2013, while the weighted average interest rates ofboth interest-bearing and noninterest-bearing deposits have decreased from 0.52% at December 31, 2012 to 0.40% at December 31, 2013.The maturities of our certificates of deposit of $100,000 or more were as follows as of December 31, 2013: (dollars in thousands) 3 months or less $50,851 Over 3 months through 6 months 76,070 Over 6 months through 12 months 80,833 Over 12 months 22,192 Total $ 229,946 FFB utilizes a third party program called CDARs which allows FFB to transfer funds of its clients in excess of the FDIC insurance limit (currently$250,000) to other institutions in exchange for an equal amount of funds from clients of these other institutions. This has allowed FFB to provide FDICinsurance coverage to its clients. As of December 31, 2013 FFB held $90.1 million of CDARs deposits. Under certain regulatory guidelines, these deposits areconsidered brokered deposits. As of December 31, 2013, FFB did not have any other brokered certificates of deposit. 52Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsBorrowings: At December 31, 2013, our borrowings consisted of $134.0 million of overnight FHLB advances at FFB and a $7.1 million termloan at FFI. At December 31, 2012, our borrowings consisted of $100.0 million of overnight FHLB advances. These FHLB advances were paid in full in theearly parts of January 2014 and January 2013, respectively. Because FFB utilizes overnight borrowings, the balance of outstanding borrowings fluctuates ona daily basis. The average balance of overnight borrowings was $79.3 million during 2013, as compared to $99.3 million during 2012. The maximum amountof short-term FHLB advances outstanding at any month-end during 2013, and 2012, was $134.0 million, and $197.0 million, respectively.Term Loan. In April 2013, we obtained a $7.5 million five year term loan from an unaffiliated bank lender. The principal amount of the loanbears interest at a rate of 90 day Libor plus 4.0% per annum. The loan agreement requires us to make monthly payments of principal and interest, the amountsof which are determined on the basis of a 10 year amortization schedule, with a final payment of the unpaid principal balance, in the amount of $3.8 million,plus accrued but unpaid interest, at the maturity date of the loan, which will be in May 2018. We have the right, in our discretion, to prepay all or a portion ofthe loan at any time, without any penalties or premium. We have pledged all of the common stock of FFB to the lender as security for the performance of ourpayment and other obligations under the loan agreement. The loan agreement obligates us to meet certain financial covenants, including the following: • a Tier 1 capital (leverage) ratio at FFB of at least 5.0% at the end of each calendar quarter; • a total risk-based capital ratio at FFB of not less than 10.0% at the end of each calendar quarter; • a ratio at FFB of nonperforming assets to net tangible capital, as adjusted, plus our ALLL, of not more than 40.0% at the end of eachcalendar quarter; • a ratio at FFB of classified assets to tier 1 capital, plus our ALLL, of no more than 50.0% at the end of each calendar quarter; • a consolidated fixed charge coverage ratio of not less than 1.50 to 1.0, measured quarterly for the immediately preceding 12 months; and • minimum liquidity at all times of not less than $1.0 million.As of December 31, 2013, we were in compliance with all of those financial covenants.The loan agreement also prohibits FFI (but not FFB or FFA) from doing any of the following without the lender’s prior approval: (i) paying anycash dividends to our shareholders, (ii) incurring any other indebtedness, (iii) granting any security interests or permitting the imposition of any liens, otherthan certain permitted liens, on any of FFI’s assets, or (iv) entering into significant merger or acquisition transactions outside of our banking operations. Theloan agreement provides that if we fail to pay principal or interest when due, or we commit a breach of any of our other obligations or covenants in the loanagreement, or certain events occur that adversely affect us, then, unless we are able to cure such a breach, we will be deemed to be in default of the loanagreement and the lender will become entitled to require us to immediately pay in full the then principal amount of and all unpaid interest on the loan. If inany such event we fail to repay the loan and all accrued but unpaid interest, then the lender would become entitled to sell our FFB shares which we pledgedas security for the loan in order to recover the amounts owed to it. 53Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDelinquent Loans, Nonperforming Assets and Provision for Credit LossesLoans are considered past due following the date when either interest or principal is contractually due and unpaid. Loans on which the accrual ofinterest 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 theloan 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 andnonaccrual loans as of December 31: Past Due and Still Accruing Total PastDue andNonaccrual (dollars in thousands) 30–59 Days 60-89 Days 90 Daysor More Nonaccrual Current Total 2013: Real estate loans: Residential properties $- $- $- $1,820 $1,820 $631,260 $633,080 Commercial properties - - 417 598 1,015 153,967 154,982 Land - - 1,480 - 1,480 2,314 3,794 Commercial and industrial loans - 2,744 1,315 344 4,403 88,852 93,255 Consumer loans - - - 132 132 18,352 18,484 Total $- $2,744 $3,212 $2,894 $8,850 $894,745 $903,595 Percentage of total loans 0.00% 0.30% 0.36% 0.32% 0.98% 2012: Real estate loans: Residential properties $- $- $- $146 $146 $523,130 $523,276 Commercial properties 2,012 - - - 2,012 130,205 132,217 Land - - 3,169 524 3,693 3,882 7,575 Commercial and industrial loans 1,188 1,113 11 97 2,409 65,511 67,920 Consumer loans - 147 - - 147 12,438 12,585 Total $3,200 $1,260 $3,180 $767 $8,407 $ 735,166 $ 743,573 Percentage of total loans 0.43% 0.17% 0.43% 0.10% 1.13% The amount of delinquent loans and nonaccrual loans have been adversely impacted by the loans acquired in the DCB Acquisition. As ofDecember 31, 2013, of the $6.1 million in loans over 90 days past due and on nonaccrual, $3.1 million, or 51%, were loans acquired in the DCB Acquisition.As of December 31, 2013, the Company had $0.1 million of loans classified as troubled debt restructurings, which are included as nonaccrual loans in thetable above. 54Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe following is a breakdown of our loan portfolio by the risk category of loans at December 31: (dollars in thousands) Pass SpecialMention Substandard Impaired Total 2013: Real estate loans: Residential properties $630,832 $- $- $2,248 $633,080 Commercial properties 150,053 - 4,108 821 154,982 Land 2,314 - 1,480 - 3,794 Commercial and industrial loans 88,166 43 2,047 2,999 93,255 Consumer loans 18,309 - 175 - 18,484 Total $889,674 $43 $7,810 $6,068 $903,595 2012: Real estate loans: Residential properties $519,288 $- $1,731 $2,257 $523,276 Commercial properties 127,803 - 4,414 - 132,217 Land 3,818 - 3,214 543 7,575 Commercial and industrial loans 62,000 889 2,295 2,736 67,920 Consumer loans 12,387 127 71 - 12,585 Total $725,296 $1,016 $11,725 $5,536 $743,573 As of December 31, 2013, $7.8 million of the loans classified as substandard and $1.0 million of the loans classified as impaired were loansacquired in the DCB acquisition.We consider a loan to be impaired when, based upon current information and events, we believe that it is probable that we will be unable tocollect all amounts due according to the contractual terms of the loan. We measure impairment using either the present value of the expected future cashflows discounted at the loan’s effective interest rate, or the fair value of the properties collateralizing the loan. Impairment losses are included in theallowance for loan losses through a charge to provision for loan losses. Adjustments to impairment losses due to changes in the fair value of the propertycollateralizing an impaired loan are considered in computing the provision for loan losses. Loans collectively reviewed for impairment include all loansexcept for loans which are individually reviewed based on specific criteria, such as delinquency, debt coverage, adequacy of collateral and condition ofproperty collateralizing the loans. Impaired loans include nonaccrual loans (excluding those collectively reviewed for impairment), certain restructured loansand certain performing loans less than ninety days delinquent (“other impaired loans”) which we believe are not likely to be collected in accordance withcontractual terms of the loans. 55Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsIn 2012, we purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable,at acquisition, that all contractually required payments would not be collected. The carrying amount of these purchased credit impaired loans is as follows atDecember 31: (dollars in thousands) 2013 2012 Outstanding principal balance: Loans secured by real estate: Residential properties $- $2,574 Commercial properties 5,543 5,567 Land 2,331 6,137 Total real estate loans 7,874 14,278 Commercial and industrial loans 2,489 2,621 Consumer loans 260 276 Total loans 10,623 17,175 Unaccreted discount on purchased credit impaired loans (2,945) (5,782) Total $7,678 $11,393 Allowance for Loan Losses.The following table summarizes the activity in our ALLL for the year ended December 31: (dollars in thousands) Beginning Balance Provision for Loan Losses Charge-offs Recoveries EndingBalance 2013: Real estate loans: Residential properties $4,355 $1,802 $- $- $6,157 Commercial properties 936 561 (57) - 1,440 Commercial and industrial loans 2,841 71 (763) - 2,149 Consumer loans 208 (39) - - 169 Total $8,340 $2,395 $(820) $- $9,915 2012: Real estate loans: Residential properties $3,984 $646 $(275) $- $4,355 Commercial properties 1,218 (282) - - 936 Commercial and industrial loans 1,104 1,737 - - 2,841 Consumer loans 244 (36) - - 208 Total $6,550 $2,065 $(275) $ - $8,340 Excluding the loans acquired in the DCB Acquisition, our ALLL as a percentage of total loans was 1.16% and 1.25% as of December 31, 2013,and December 31, 2012, respectively. 56Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe amount of the ALLL is adjusted periodically by charges to operations (referred to in our income statement as the “provision for loan losses”)(i) to replenish the ALLL 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 securingnon–performing loans or adverse changes in economic conditions. The amounts of the provisions we make for loan losses are based on our estimate of lossesin our loan portfolio. In estimating such losses, we use economic and loss migration models that are based on bank regulatory guidelines and industrystandards, and our historical charge-off experience and loan delinquency rates, local and national economic conditions, a borrower’s ability to repay itsborrowings, and the value of any property collateralizing the loan, as well as a number of subjective factors. However, these determinations involvejudgments about changes and trends in current economic conditions and other events that can affect the ability of borrowers to meet their loan obligations tous and a weighting among the quantitative and qualitative factors we consider in determining the sufficiency of the ALLL. Moreover, the duration andanticipated effects of prevailing economic conditions or trends can be uncertain and can be affected by a number of risks and circumstances that are outsideof our control. If changes in economic or market conditions or unexpected subsequent events were to occur, or if changes were made to bank regulatoryguidelines or industry standards that are used to assess the sufficiency of the ALLL, it could become necessary for us to incur additional, and possiblysignificant, charges to increase the ALLL, which would have the effect of reducing our income.In addition, the FDIC and the DBO, as an integral part of their examination processes, periodically review the adequacy of our ALLL. Theseagencies may require us to make additional provisions for loan losses, over and above the provisions that we have already made, the effect of which would beto reduce our income. 57Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe following table presents the balance in the ALLL and the recorded investment in loans by impairment method at December 31: (dollars in thousands) Allowance for Loan Losses UnaccretedCreditComponent Other Loans Evaluated for Impairment Purchased Impaired Total Individually Collectively 2013: Allowance for loan losses: Real estate loans: Residential properties $- $6,157 $- $6,157 $36 Commercial properties 190 1,250 - 1,440 290 Land - - - - 26 Commercial and industrial loans 925 1,224 - 2,149 126 Consumer loans - 169 - 169 11 Total $1,115 $8,800 $- $9,915 $489 Loans: Real estate loans: Residential properties $2,248 $630,832 $- $633,080 $3,449 Commercial properties 821 150,053 4,108 154,982 23,968 Land - 2,314 1,480 3,794 1,939 Commercial and industrial loans 2,999 88,209 2,047 93,255 10,354 Consumer loans - 18,441 43 18,484 160 Total $6,068 $889,849 $7,678 $903,595 $39,870 2012: Allowance for loan losses: Real estate loans: Residential properties $- $4,355 $- $4,355 $62 Commercial properties - 936 - 936 617 Land - - - - 129 Commercial and industrial loans 1,536 1,305 - 2,841 302 Consumer loans - 208 - 208 19 Total $1,536 $6,804 $- $8,340 $1,129 Loans: Real estate loans: Residential properties $2,257 $519,288 $1,731 $523,276 $5,121 Commercial properties - 128,035 4,182 132,217 39,862 Land 543 3,818 3,214 7,575 4,521 Commercial and industrial loans 2,736 62,989 2,195 67,920 16,512 Consumer loans - 12,514 71 12,585 324 Total $5,536 $726,644 $11,393 $743,573 $66,340 The column labeled “Unaccreted Credit Component Other Loans” represents the amount of unaccreted credit component discount for the otherloans acquired in the DCB acquisition, and the stated principal balance of the related loans. The discount is equal to 1.23% and 1.70% of the stated principalbalance of these loans as of December 31, 2013 and 2012, respectively. 58Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsLiquidityLiquidity management focuses on our ability to generate, on a timely and cost-effective basis, cash sufficient to meet the funding needs ofcurrent loan demand, deposit withdrawals, principal and interest payments with respect to outstanding borrowings and to pay operating expenses. Ourliquidity management is both a daily and long-term function of funds management. Liquid assets are generally invested in marketable securities or held ascash at the FRB or other financial institutions.We monitor our liquidity in accordance with guidelines established by our Board of Directors and applicable regulatory requirements. Our needfor liquidity is affected by our loan activity, net changes in deposit levels and the maturities of our borrowings. The principal sources of our liquidity consistof deposits, loan interest and principal payments and prepayments, investment management and consulting fees, FHLB advances and proceeds fromborrowings and sales of shares by FFI. The remaining balances of the Company’s lines of credit available to draw down totaled $174.2 million atDecember 31, 2013.Cash Flows Provided by Operating Activities. During the year ended December 31, 2013 operating activities provided net cash of $11.2 million,comprised primarily of our net income of $7.9 million and $4.3 million of non-cash charges, including provisions for loan losses, REO losses, stock basedcompensation expense and depreciation and amortization, offset by $1.3 million non-cash deferred tax benefit recognized in our net income. In 2012,operating activities provided net cash of $8.4 million, comprised primarily of net income of $5.8 million and $3.3 million of non-cash charges, includingprovision for loan losses, stock based compensation expense and depreciation and amortization, partially offset by a $2.1 million non-cash deferred taxbenefit recognized in our net income.Cash Flows Used in Investing Activities. During the year ended December 31, 2013, investing activities used net cash of $217.0 million,primarily to fund a $160.8 million net increase in loans and a $56.1 million net increase in securities AFS. In 2012, investing activities used net cash of $86.0million, primarily to fund a $129.9 million net increase in loans, which was partially offset by a $10.4 million decrease net decrease in AFS securities andFHLB stock and $34.9 million of cash acquired in the DCB Acquisition.Cash Flow Provided by Financing Activities. During the year ended December 31, 2013, financing activities provided net cash of $199.7million, consisting primarily of a net increase of $152.3 million in deposits, a net increase of $41.1 million in borrowings and $6.3 million received from thesale of shares in a private offering. In 2012, financing activities provided net cash of $130.6 million, consisting primarily of a net increase of $116.0 millionin deposits, a net increase of $9.0 million in borrowings, and $5.6 million from the sale of shares in a private offering.Ratio of Loans to Deposits. The relationship between gross loans and total deposits can provide a useful measure of a bank’s liquidity. Sincerepayment 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 liquidare 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 canadversely affect interest income and earnings. As a result, our goal is to achieve a loan-to-deposit ratio that appropriately balances the requirements ofliquidity and the need to generate a fair return on our assets. At December 31, 2013 and December 31, 2012, the loan-to-deposit ratios at FFB were 110.4%,and 112.4%, respectively.Off-Balance Sheet ArrangementsThe following table provides the off-balance sheet arrangements of the Company as of December 31, 2013: (dollars in thousands) Commitments to fund new loans $ 3,580 Commitments to fund under existing loans, lines of credit 88,292 Commitments under standby letters of credit 1,527 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 December 31, 2013, FFB was obligated on $46.0 million of letters of creditto the FHLB which were being used as collateral for public fund deposits, including $36.0 million of deposits from the State of California. 59Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAsset and Liability Management: Interest Rate RiskInterest rate risk is inherent in financial services businesses. Management of interest-earning assets and interest-bearing liabilities in terms of rateand maturity has an important effect on our liquidity and net interest margin. Interest rate risk results from interest-earning assets and interest-bearingliabilities maturing or repricing at different times, on a different basis or in unequal amounts. The Board of Directors of FFB approves policies and limitsgoverning the management of interest rate risk. The asset / liability committee formed by these policies is responsible for monitoring our interest rate risk andproviding periodic reports to the Board of Directors regarding our compliance with these policies and limits. We have established three primary measurementprocesses to quantify and manage our interest rate risk. These include: (i) gap analysis which measures the repricing mismatches of asset and liability cashflows; (ii) net interest income simulations which are used to measure the impact of instantaneous changes in interest rates on net interest income over a 12month forecast period; and (iii) economic value of equity calculations which measure the sensitivity of our economic value of equity to simultaneouschanges in interest rates.Gap Analysis. Under this analysis, rate sensitivity is measured by the extent to which our interest-earning assets and interest-bearing liabilitiesreprice or mature at different times. Rate sensitivity gaps in which the repricing of interest-earning assets exceed the repricing of interest-bearing liabilitiestend to produce an expanded net yield on interest-earning assets in rising interest rate environments and a reduced net yield on interest-earning assets indeclining interest rate environments. Conversely, when the repricing of interest-bearing liabilities exceed the repricing of interest-earning assets, the net yieldon interest-earning assets generally declines in rising interest rate environments and increases in declining interest rate environments. The following tablesets forth the interest-earning assets and interest-bearing liabilities on the basis of when they reprice or mature as of December 31, 2013: (dollars in thousands) Less than1 year From 1 to3 Years From 3 to5 Years Over 5Years Total Interest-earnings assets: Cash equivalents $56,954 $- $- $- $56,954 Securities, FHLB stock 12,233 9,102 7,753 39,592 68,500 Loans 151,521 143,593 289,987 318,688 903,789 Interest-bearing liabilities: Deposits: Interest-bearing checking (217,129) - - - (217,129) Money market and savings (121,260) - - - (121,260) Certificates of deposit (221,414) (24,452) - - (245,866) Borrowings (141,063) - - - (141,063) Net: Current Period $(480,158) $128,243 $297,560 $358,280 $303,925 Net: Cumulative $(480,158) $(351,915) $(54,355) $303,925 The cumulative positive total of $304.0 million reflects the funding provided by noninterest-bearing deposits and equity. Because we had a$480.2 million net negative position at December 31, 2013 for the repricing period of less than one year, the result of this analysis indicate that we would beadversely impacted by a short term increase in interest rates and would benefit from a short term decrease in interest rates.However, the extent to which our net interest margin will be impacted by changes in prevailing interest rates will depend on a number of factors,including how quickly interest-earning assets and interest-bearing liabilities react to interest rate changes. It is not uncommon for rates on certain assets orliabilities to lag behind changes in the market rates of interest. Additionally, prepayments of loans and early withdrawals of certificates of deposit couldcause interest sensitivities to vary. As a result, the relationship or “gap” between interest-earning assets and interest-bearing liabilities, as shown in the abovetable, is only a general indicator of interest rate sensitivity and the effect of changing rates of interest on our net interest income is likely to be different fromthat predicted solely on the basis of the interest rate sensitivity analysis set forth in the above table. 60Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsNet Interest Income Simulations (or NII). Under this analysis, we use a simulation model to measure and evaluate potential changes in our netinterest income resulting from changes in interest rates. This model measures the impact of instantaneous shocks of 100, 200, 300 and 400 basis points on ournet interest income over a 12 month forecast period. The computed changes to our net interest income between hypothetical rising and declining ratescenarios for the twelve month period beginning December 31, 2013 are as follows: Assumed Instantaneous Change in Interest Rates Estimated Increase(Decrease) in NetInterest Income + 100 basis points (6.12) % + 200 basis points (11.06) % + 300 basis points (15.84) % + 400 basis points (20.22) % - 100 basis points 0.99 % - 200 basis points 0.80 % We did not include scenarios below the minus 200 basis point scenario because we believe those scenarios are not meaningful based on currentinterest rate levels. The NII results indicate that we would be adversely impacted by a short term increase in interest rates and would benefit from a short termdecrease in interest rates. The results of the NII are hypothetical, and a variety of factors might cause actual results to differ substantially from what isdepicted. These could include non-parallel yield curve shifts, changes in market interest rate spreads and the actual reaction to changes in interest rate levelsof interest-earning assets and interest-bearing liabilities. It is not uncommon for rates on certain assets or liabilities to lag behind changes in the market ratesof interest. Additionally, prepayments of loans and early withdrawals of certificates of deposit could cause interest sensitivities to vary.Economic Value of Equity Calculations (or EVE). The EVE measures the sensitivity of our market value equity to simultaneous changes ininterest rates. EVE is derived by subtracting the economic value of FFB’s liabilities from the economic value of its assets, assuming current and hypotheticalinterest rate environments. EVE is based on all of the future cash flows expected to be generated by the FFB’s current balance sheet, discounted to derive theeconomic value of FFB’s assets & liabilities. These cash flows may change depending on the assumed interest rate environment and the resulting changes inother assumptions, such as prepayment speeds. The computed changes to our economic value of equity between hypothetical rising and declining ratescenarios as of December 31, 2013 are as follows: Assumed Simultaneous Change in Interest Rates EstimatedIncrease (Decrease)in EconomicValue of Equity + 100 basis points (8.3) % + 200 basis points (17.9) % + 300 basis points (17.2) % + 400 basis points (14.7) % - 100 basis points (12.4) % - 200 basis points (19.3) % We did not include scenarios below the minus 200 basis point scenario because we believe those scenarios are not meaningful based on currentinterest rate levels. The EVE results indicate that we would be adversely impacted by a short term increase in interest rates and a short term decrease ininterest rates. This differs from the NII results because, in the current interest rate environment, assumed interest rate floors for loans eliminates the benefitnormally derived for loans in a declining interest rate environment. The results of the EVE are hypothetical, and a variety of factors might cause actual resultsto differ substantially from what is depicted. These could include non-parallel yield curve shifts, changes in market interest rate spreads and the actualreaction to changes in interest rate levels of interest-earning assets and interest-bearing liabilities. It is not uncommon for rates on certain assets or liabilitiesto lag behind changes in the market rates of interest. Additionally, prepayments of loans and early withdrawals of certificates of deposit could cause interestsensitivities to vary. 61Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe results of these analyses and simulations do not contemplate all of the actions that we may undertake in response to changes in interest rates.In response to actual or anticipated changes in interest rates, we have various alternatives for managing and reducing FFB’s exposure to interest rate risk, suchas entering into hedges and obtaining long-term fixed rate FHLB advances. To date, we have not entered into any hedges or other derivative instruments forthis or any other purpose and it is our policy not to use derivatives or other financial instruments for trading or other speculative purposes.Capital Resources and DividendsUnder federal banking regulations that apply to all United States based bank holding companies and federally insured banks, the Company (on aconsolidated basis) and FFB (on a stand-alone basis) must 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.Under those regulations, which are based primarily on those quantitative measures, each bank holding company must meet a minimum capital ratio and eachfederally insured bank is determined by its primary federal bank regulatory agency to come within one of the following capital adequacy categories on thebasis of its capital ratios: (i) well capitalized; (ii) adequately capitalized; (iii) undercapitalized; (iv) significantly undercapitalized; or (v) criticallyundercapitalized.Certain qualitative assessments also are made by a banking institution’s primary federal regulatory agency that could lead the agency todetermine that the banking institution should be assigned to a lower capital category than the one indicated by the quantitative measures used to assess theinstitution’s capital adequacy. At each successive lower capital category, a banking institution is subject to greater operating restrictions and increasedregulatory 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, ascompared to the respective regulatory requirements applicable to them: Actual For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provisions (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio FFI December 31, 2013 Tier 1 leverage ratio $ 85,268 8.67% $ 39,321 4.00% Tier 1 risk-based capital ratio 85,268 13.04% 26,150 4.00% Total risk-based capital ratio 93,465 14.30% 52,300 8.00% December 31, 2012 Tier 1 leverage ratio $72,909 9.19% $31,730 4.00% Tier 1 risk-based capital ratio 72,909 13.60% 21,446 4.00% Total risk-based capital ratio 79,636 14.85% 42,891 8.00% FFB December 31, 2013 Tier 1 leverage ratio $84,243 8.61% $39,115 4.00% $48,894 5.00% Tier 1 risk-based capital ratio 84,243 12.95% 26,017 4.00% 39,025 6.00% Total risk-based capital ratio 92,399 14.21% 52,034 8.00% 65,042 10.00% December 31, 2012 Tier 1 (core) capital ratio $67,515 8.56% $31,563 4.00% $39,454 5.00% Tier 1 risk-based capital ratio 67,515 12.68% 21,292 4.00% 31,939 6.00% Total risk-based capital ratio 74,194 13.94% 42,585 8.00% 53,231 10.00% 62Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsAs of each of the dates set forth in the above table, the Company (on a consolidated basis) exceeded the minimum required capital ratiosapplicable to it and FFB (on a stand-alone basis) qualified as a well-capitalized depository institution under the capital adequacy guidelines described above.As a condition of approval of the DCB Acquisition by the FDIC, FFB is required to maintain a Tier 1 Leverage Ratio of 8.5% through August 15, 2014.As of December 31, 2013, the amount of capital at FFB in excess of amounts required to be Well Capitalized was $35.3 million for the Tier 1Leverage Ratio, $45.2 million for the Tier 1 risk-based capital ratio and $27.4 million for the Total risk-based capital ratio. No conditions or events haveoccurred since December 31, 2013 which we believe have changed FFI’s or FFB’s capital adequacy classifications from those set forth in the above table.During the years ended December 31, 2013 and 2012, FFI made capital contributions to FFB of $8.5 million and $5.3 million, respectively. As ofDecember 31, 2013, FFI had $8.0 million of available capital and, therefore, has the ability and financial resources to contribute additional capital to FFB, ifneeded.Due to the adoption in June 2013 of the Basel III capital guidelines by the FRB and the FDIC, effective beginning on January 1, 2015, FFI andFFB will be required to meet higher and more stringent capital requirements than those that currently exist. For additional information regarding the Basel IIIcapital rules, see “Supervision and Regulation—First Foundation Bank—New Basel III Capital Rules” elsewhere in this Annual Report on Form 10-K.We did not pay dividends in 2013 or 2012 and we have no plans to pay dividends at least for the foreseeable future. Instead, it is our intention toretain internally generated cash flow to support our growth. Moreover, the payment of dividends is subject to certain regulatory restrictions, which arediscussed in ITEM 1 – “Business - Supervision and Regulation—Dividends.” included elsewhere in this Annual Report on Form 10-K. In addition, theagreement governing the term loan obtained by FFI in April 2013 provides that we must obtain the prior consent of the lender to pay dividends to ourshareholders.We had no material commitments for capital expenditures as of December 31, 2013. However, we intend to take advantage of opportunities thatmay arise in the future to grow our businesses, including by opening additional wealth management offices or acquiring complementary businesses that webelieve will provide us with attractive risk-adjusted returns, although we do not have any immediate plans, arrangements or understandings relating to anymaterial acquisition. As a result, we may seek to obtain additional borrowings and to sell additional shares of our common stock to raise funds which wemight need for these purposes. There is no assurance, however, that, if required, we will succeed in obtaining additional borrowings or selling additionalshares 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, aswell as our future results of operations. See ITEM 1A – “RISK FACTORS. We may sell additional shares of common stock in the future which could result indilution to our shareholders” for information regarding the impact that future sales of our common stock may have on the share ownership of our existingshareholders. 63Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsItem 8. Financial Statements and Supplementary DataFIRST FOUNDATION INCINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements 65 Consolidated Balance Sheets: December 31, 2013 and December 31, 2012 66 Consolidated Income Statements:Years Ended December 31, 2013 and December 31, 2012 67 Consolidated Statements of Comprehensive Income:Years Ended December 31, 2013 and December 31, 2012 68 Consolidated Statements of Changes in Shareholders’ Equity:Years Ended December 31, 2013 and December 31, 2012 69 Consolidated Statements of Cash Flows:Years Ended December 31, 2013 and December 31, 2012 70 Notes to the Consolidated Financial Statements 71 64Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and ShareholdersFirst Foundation Inc. and SubsidiariesIrvine, CaliforniaWe have audited the accompanying consolidated balance sheets of First Foundation Inc. and Subsidiaries as of December 31, 2013 and 2012 and the relatedconsolidated statements of income and comprehensive income, changes in shareholders’ equity and cash flows for the years then ended. These consolidatedfinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. TheCompany is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included considerationof internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includesassessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Foundation Inc.and Subsidiaries as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity withaccounting principles generally accepted in the United States of America. Laguna Hills, CaliforniaMarch 17, 2014 65Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share amounts) December 31, 2013 2012 ASSETS Cash and cash equivalents $56,954 $63,108 Securities available-for-sale (“AFS”) 59,111 5,813 Loans, net of deferred fees 903,645 743,627 Allowance for loan and lease losses (“ALLL”) (9,915) (8,340) Net loans 893,730 735,287 Premises and equipment, net 3,249 2,384 Investment in FHLB stock 6,721 8,500 Deferred taxes 12,052 10,055 Real estate owned (“REO”) 375 650 Other assets 5,168 4,712 Total Assets $1,037,360 $830,509 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Deposits $802,037 $649,741 Borrowings 141,063 100,000 Accounts payable and other liabilities 7,498 7,188 Total Liabilities 950,598 756,929 Commitments and contingencies - - Shareholders’ Equity Common Stock, par value $.001: 20,000,000 shares authorized; 7,733,514 and 7,366,126 shares issued andoutstanding at December 31, 2013 and December 31, 2012, respectively 8 7 Additional paid-in-capital 76,334 69,434 Retained earnings 11,990 4,139 Accumulated other comprehensive income (loss), net of tax (1,570) - Total Shareholders’ Equity 86,762 73,580 Total Liabilities and Shareholders’ Equity $1,037,360 $830,509 (See accompanying notes to the consolidated financial statements) 66Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.CONSOLIDATED INCOME STATEMENTS(In thousands, except share and per share amounts) For the Year Ended December 31, 2013 2012 Interest income: Loans $37,918 $30,552 Securities 864 193 Fed funds sold and interest-bearing deposits 399 129 Total interest income 39,181 30,874 Interest expense: Deposits 3,167 2,918 Borrowings 340 227 Total interest expense 3,507 3,145 Net interest income 35,674 27,729 Provision for loan losses 2,395 2,065 Net interest income after provision for loan losses 33,279 25,664 Noninterest income: Asset management, consulting and other fees 18,240 15,326 Other income 1,584 1,294 Total noninterest income 19,824 16,620 Noninterest expense: Compensation and benefits 28,760 23,267 Occupancy and depreciation 6,556 5,068 Professional services and marketing costs 4,003 2,720 Other expenses 4,303 3,421 Total noninterest expense 43,622 34,476 Income before taxes on income 9,481 7,808 Taxes on income 1,630 2,007 Net income $7,851 $5,801 Net income per share: Basic $1.06 $0.88 Diluted $1.01 $0.85 Shares used in computation: Basic 7,424,210 6,603,533 Diluted 7,742,215 6,831,955 (See accompanying notes to the consolidated financial statements) 67Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In thousands) For the Year Ended December 31, 2013 2012 Net income $ 7,851 $ 5,801 Other comprehensive income (loss): Unrealized holding gains (losses) on securities arising during the period (2,668) 14 Other comprehensive income (loss) before tax (2,668) 14 Income tax (expense) benefit related to items of other comprehensive income 1,098 - Other comprehensive income (loss) (1,570) 14 Total comprehensive income $6,281 $5,815 (See accompanying notes to the consolidated financial statements) 68Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.CONSOLIDATED STATEMENTS OF CHANGESIN SHAREHOLDERS’ EQUITY(In thousands, except share and per share amounts) Common Stock AdditionalPaid-in-Capital RetainedEarnings(Deficit) AccumulatedOtherComprehensive Income (Loss) Total Numberof Shares Amount Balance: December 31, 2011 6,166,574 $6 $50,867 $(1,662) $(14) $49,197 Net income - - - 5,801 - 5,801 Other comprehensive income - - - - 14 14 Issuance of restricted stock 9,667 - - - - - Issuance of common stock Under merger agreement 815,447 1 12,230 - - 12,231 Capital raise 374,438 - 5,617 - - 5,617 Stock-based compensation - - 720 - - 720 Balance: December 31, 2012 7,366,126 7 69,434 4,139 - 73,580 Net income - - - 7,851 - 7,851 Other comprehensive (loss) - - - - (1,570) (1,570) Issuance of restricted stock 9,667 - - - - - Issuance of common stock 357,721 1 6,321 - - 6,322 Stock-based compensation - - 579 - - 579 Balance: December 31, 2013 7,733,514 $8 $76,334 $11,990 $(1,570) $ 86,762 (See accompanying notes to the consolidated financial statements) 69Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) For the Year Ended December 31, 2013 2012 Cash Flows from Operating Activities: Net income $7,851 $5,801 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 2,395 2,065 Depreciation and amortization 1,040 591 Stock–based compensation expense 579 720 Deferred tax benefit (1,267) (2,051) Provision for REO losses 250 - Increase in other assets (366) (1,078) Increase in accounts payable and other liabilities 703 2,378 Net cash provided by operating activities 11,185 8,426 Cash Flows from Investing Activities: Net increase in loans (160,838) (129,899) Purchase of AFS securities (62,664) (19,100) Maturity / sale of AFS securities 6,608 32,486 Cash from acquisition - 34,891 Sale (purchase) of FHLB stock, net 1,779 (3,029) Purchase of premises and equipment (1,905) (1,370) Net cash used in investing activities (217,020) (86,021) Cash Flows from Financing Activities: Increase in deposits 152,296 115,988 Net increase in borrowings 41,063 9,000 Proceeds from the sale of stock, net 6,322 5,617 Net cash provided by financing activities 199,681 130,605 Increase (decrease) in cash and cash equivalents (6,154) 53,010 Cash and cash equivalents at beginning of year 63,108 10,098 Cash and cash equivalents at end of year $56,954 $63,108 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $3,506 $3,032 Income taxes $3,490 $2,475 Noncash transactions: Chargeoffs against allowance for loans losses $820 $275 Transfer from loans to REO $- $225 (See accompanying notes to the consolidated financial statements) 70Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears Ended December 31, 2013 and 2012NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBusinessFirst Foundation Inc. (“FFI”) is a financial holding company whose operations are conducted through its wholly owned subsidiaries: FirstFoundation Advisors (“FFA”) and First Foundation Bank (“FFB” or the “Bank”), and First Foundation Insurance Services (“FFIS”), a wholly ownedsubsidiary of FFB (collectively the “Company”). FFI also has two inactive wholly owned subsidiaries, First Foundation Consulting (“FFC”) and FirstFoundation Advisors, LLC (“FFA LLC”). In addition, FFA has set up a limited liability company, which is not included in these consolidated financialstatements, as a private investment fund to provide an investment vehicle for its clients. The corporate headquarters for all of the companies is located inIrvine, California. The Company has wealth management offices in California in Newport Beach, Palm Desert, Pasadena, El Centro, West Los Angeles andSan Diego and in Las Vegas, Nevada.FFA, established in 1985 and incorporated in the State of California, began operating in 1990 as a fee based registered investment advisor. FFAprovides (i) investment management and financial planning services for high net-worth individuals, retirement plans, charitable institutions and privatefoundations; (ii) provides financial, investment and economic advisory and related services to high net-worth individuals and their families, family-ownedbusinesses, and other related organizations; and (iii) provides support services involving the processing and transmission of financial and economic data forcharitable organizations. At the end of 2013, these services were provided to approximately 1,300 clients, primarily located in Southern California, with anaggregate of $2.6 billion of assets under management.The Bank commenced operations in 2007 and currently operates primarily in Southern California and in Nevada. The Bank offers a wide rangeof deposit instruments including personal and business checking and savings accounts, including interest-bearing negotiable order of withdrawal (“NOW”)accounts, money market accounts, and time certificates of deposit (“CD”) accounts. As a lender, the Bank originates, and retains for its portfolio, loanssecured by real estate and commercial loans. Over 90% of the Bank’s loans are to clients located in California. The Bank also offers a wide range ofspecialized services including trust services, on-line banking, remote deposit capture, merchant credit card services, ATM cards, Visa debit cards, businesssweep accounts, and through FFIS, insurance brokerage services. Effective in the second quarter of 2012, the Bank changed its charter to a state non-memberbank and it is now subject to continued examination by the California Department of Business Oversight and Federal Deposit Insurance Corporation.On August 15, 2012, the Company completed the acquisition of Desert Commercial Bank (“DCB”). As a result of this acquisition (the “Merger”),the assets, liabilities and operations of DCB were transferred to FFB. In addition, DCB ceased to exist as a separate legal entity.At December 31, 2013, the Company employed 187.5 full-time equivalent employees.Subsequent EventsThe Company has evaluated subsequent events for recognition and disclosure through March 17, 2014, which is the date the financialstatements were available to be issued.Basis of PresentationThe consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All inter-company balances andtransactions have been eliminated in consolidation. The consolidated financial statements have been prepared in conformity with accounting principlesgenerally 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 andrevenues and expenses for the period. Actual results could differ significantly from those estimates. 71Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 ReclassificationsCertain amounts in the 2012 consolidated financial statements have been reclassified to conform to the 2013 presentation.Cash and Cash EquivalentsFor purposes of reporting cash flows, cash and cash equivalents include cash, due from banks, certificates of deposits with maturities of less thanninety days, investment securities with original maturities of less than ninety days, money market mutual funds and Federal funds sold. At times, the Bankmaintains cash at major financial institutions in excess of Federal Deposit Insurance Corporation (“FDIC”) insured limits. However, as the Bank places thesedeposits with major well-capitalized financial institutions and monitors the financial condition of these institutions, management believes the risk of loss tobe minimal. The Bank maintains most of its excess cash at the Federal Reserve Bank, with well-capitalized correspondent banks or with other depositoryinstitutions at amounts less than the FDIC insured limits. At December 31, 2013, included in cash and cash equivalents were $44.1 million in funds held atthe Federal Reserve Bank.Banking regulations require that banks maintain a percentage of their deposits as reserves in cash or on deposit with the Federal Reserve Bank.The Bank was in compliance with its reserve requirements as of December 31, 2013.Certificates of DepositFrom time to time, the Company may invest funds with other financial institutions through certificates of deposit. Certificates of deposit withmaturities of less than ninety days are included as cash and cash equivalents. Certificates of deposit are carried at cost.Investment SecuritiesInvestment securities for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiumsand discounts that are recognized in interest income using the interest method over the period to maturity. Investments not classified as trading securities noras held-to-maturity securities are classified as available-for-sale securities and recorded at fair value. Unrealized gains or losses on available-for-sale securitiesare excluded from net income and reported as an amount net of taxes as a separate component of other comprehensive income included in shareholders’equity. Premiums or discounts on held-to-maturity and available-for-sale securities are amortized or accreted into income using the interest method.Realized gains or losses on sales of held-to-maturity or available-for-sale securities are recorded using the specific identification method.Declines in the fair value of individual held-to-maturity and available-for-sale securities below their cost that are considered other-than-temporaryimpairment (“OTTI”) result in write-downs of the individual securities to their fair value. The credit component of any OTTI related write-downs is chargedagainst earnings.Management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant suchan evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial conditionand near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a securityin an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entiredifference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementionedcriteria, the amount of impairment is split into two components as follows; OTTI related to credit loss, which must be recognized in the income statementand; OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present valueof the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings. 72Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 Loan Origination Fees and CostsNet loan origination fees and direct costs associated with lending are deferred and amortized to interest income as an adjustment to yield overthe respective lives of the loans using the interest method. The amortization of deferred fees and costs is discontinued on loans that are placed on nonaccrualstatus. When a loan is paid off, any unamortized net loan origination fees are recognized in interest income.Allowance for Loan LossesThe allowance for loan losses is a valuation allowance for probable incurred credit losses. Provisions for loan losses are charged to operationsbased on management’s evaluation of the estimated losses in its loan portfolio. The major factors considered in evaluating losses are historical charge-offexperience, delinquency rates, local and national economic conditions, the borrower’s ability to repay the loan and timing of repayments, and the value ofany related collateral. Management’s estimate of fair value of the collateral considers current and anticipated future real estate market conditions, therebycausing these estimates to be particularly susceptible to changes that could result in a material adjustment to results of operations in the future. Recovery ofthe carrying value of such loans and related real estate is dependent, to a great extent, on economic, operating and other conditions that may be beyond theBank’s control.The Bank’s primary regulatory agencies periodically review the allowance for loan losses and such agencies may require the Bank to recognizeadditions to the allowance based on information and factors available to them at the time of their examinations. Accordingly, no assurance can be given thatthe Bank will not recognize additional provisions for loan losses with respect to its loan portfolio.The allowance consists of specific and general reserves. Specific reserves relate to loans that are individually classified as impaired. Loan lossesare charged against the allowance when management believes a loan balance is uncollectible. Subsequent recoveries, if any, are credited to the allowance.Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should becharged off.The Bank considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Bank will beunable to collect all amounts due according to the contractual terms of the loan agreement. The Bank bases the measurement of loan impairment using eitherthe present value of the expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the loan’s collateral properties.Impairment losses are included in the allowance for loan losses through a charge to provision for loan losses. Adjustments to impairment losses due tochanges in the fair value of impaired loans’ collateral properties are included in the provision for loan losses. The Bank’s impaired loans include nonaccrualloans (excluding those collectively reviewed for impairment), certain restructured loans and certain performing loans less than ninety days delinquent (“otherimpaired loans”) that the Bank believes will likely not be collected in accordance with contractual terms of the loans. Loans, for which the terms have beenmodified resulting in a concession, and for which the borrower is experiencing financial difficulties, are generally considered troubled debt restructurings andclassified as impaired.Commercial loans and loans secured by multifamily and commercial real estate are individually evaluated for impairment. If a loan is impaired, aportion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at thefair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer andresidential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cashflows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, atthe fair value of the collateral. For troubled debt restructurings that subsequently default, the Bank determines the amount of reserve in accordance with theaccounting policy for the allowance for loan losses. 73Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 General reserves cover non-impaired loans and are based on historical loss rates for each portfolio segment, adjusted for the effects of qualitativeor environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical lossexperience. Because the Bank is relatively new and has not experienced any meaningful amount of losses in any of its current portfolio segments, the Bankcalculates the historical loss rates on industry data, specifically loss rates published by the FDIC. Qualitative factors include consideration of the following:changes in lending policies and procedures; changes in economic conditions, changes in the nature and volume of the portfolio; changes in the experience,ability and depth of lending management and other relevant staff; changes in the volume and severity of past due, nonaccrual and other adversely gradedloans; changes in the loan review system; changes in the value of the underlying collateral for collateral-dependent loans; concentrations of credit and theeffect of other external factors such as competition and legal and regulatory requirements.Portfolio segments identified by the Bank include loans secured by residential real estate, including multifamily and single family properties,loans secured by commercial real estate, commercial and industrial loans and consumer loans. Relevant risk characteristics for these portfolio segmentsgenerally include debt service coverage, loan-to-value ratios and financial performance on non-consumer loans and debt-to income, collateral type and loan-to-value ratios for consumer loans.Financial InstrumentsIn the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit,commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or relatedfees are incurred or received.Real Estate OwnedREO represents the collateral acquired through foreclosure in full or partial satisfaction of the related loan. REO is recorded at the fair value lessestimated selling costs at the date of foreclosure. Any write-down at the date of transfer is charged to the allowance for loan losses. The recognition of gains orlosses on sales of REO is dependent upon various factors relating to the nature of the property being sold and the terms of sale. REO values are reviewed onan ongoing basis and any decline in value is recognized as foreclosed asset expense in the current period. The net operating results from these assets areincluded in the current period in noninterest expense as foreclosed asset expense (income).Premises and EquipmentPremises and equipment are stated at cost, less accumulated depreciation and amortization, which is charged to expense on a straight-line basisover the estimated useful lives of 3 to 10 years. Premises under leasehold improvements are amortized on a straight-line basis over the term of the lease or theestimated useful life of the improvements, whichever is shorter. Expenditures for major renewals and betterments of premises and equipment are capitalizedand those for maintenance and repairs are charged to expense as incurred. A valuation allowance is established for any impaired long-lived assets. TheCompany did not have impaired long-lived assets as of December 31, 2013 or 2012.Federal Home Loan Bank StockAs a member of the Federal Home Loan Bank (“FHLB”), the Bank is required to purchase FHLB stock in accordance with its advances, securitiesand deposit agreement. This stock, which is carried at cost, may be redeemed at par value. However, there are substantial restrictions regarding redemptionand the Bank can only receive a full redemption in connection with the Bank surrendering its FHLB membership. At December 31, 2013, the Bank held $6.7million of FHLB stock. The Company does not believe that this stock is currently impaired and no adjustments to its carrying value have been recorded. 74Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 Revenue RecognitionInterest on Loans: Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loansis discontinued when reasonable doubt exists as to the full, timely collection of interest or principal and, generally, when a loan becomes contractually pastdue for ninety days or more with respect to principal or interest. The accrual of interest may be continued on a well-secured loan contractually past due ninetydays 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.When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period income. Intereston such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable. Accrual of interest isresumed on loans only when, in the judgment of management, the loan is estimated to be fully collectible. The Bank continues to accrue interest onrestructured loans since full payment of principal and interest is expected and such loans are performing or less than ninety days delinquent and, therefore, donot meet the criteria for nonaccrual status. Restructured loans that have been placed on nonaccrual status are returned to accrual status when the remainingloan balance, net of any charge-offs related to the restructure, is estimated to be fully collectible by management and performing in accordance with theapplicable loan terms.Other Fees: Asset management fees are billed on a monthly or quarterly basis based on the amount of assets under management and theapplicable contractual fee percentage. Asset management fees are recognized as revenue in the period in which they are billed and earned. Financial planningfees are due and billed at the completion of the planning project and are recognized as revenue at that time.Stock-Based CompensationThe Company recognizes the cost of employee services received in exchange for awards of stock options, or other equity instruments, based onthe grant-date fair value of those awards. This cost is recognized over the period, which an employee is required to provide services in exchange for theaward, generally the vesting period. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’scommon stock at the date of grant is used for stock awards.Marketing CostsThe Company expenses marketing costs, including advertising, in the period incurred.Income TaxesThe Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets andliabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets andliabilities and their respective tax bases. A valuation allowance is established if it is “more likely than not” that all or a portion of the deferred tax asset willnot be realized.The tax effects from an uncertain tax position can be recognized in the financial statements only if, based on its merits, the position is morelikely than not to be sustained on audit by the taxing authorities. Interest and penalties related to uncertain tax positions are recorded as part of income taxexpense.Comprehensive IncomeComprehensive income consists of net income and other comprehensive income. Changes in unrealized gains and losses on available-for-salesecurities and the related tax costs or benefits are the only components of other comprehensive income for the Company. 75Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 Earnings Per Share (“EPS”)Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common sharesoutstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential commonshares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by theCompany relate to outstanding stock options and restricted stock, and are determined using the treasury stock method.Fair Value MeasurementFair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separatenote. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors,especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.New Accounting PronouncementsIn December 2011, the FASB issued ASU 2011-11, Balance Sheet (“Topic 210”)—Disclosures about Offsetting Assets and Liabilities (“ASU 11-11”). This ASU amends Topic 210, “Balance Sheet,” to require an entity to disclose both gross and net information about financial instruments, such as salesand repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that areeligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU 11-11 is effective for annualand interim periods beginning on January 1, 2013. The adoption of this ASU did not have a significant impact on the Company’s financial position, resultsof operations, or cash flows.In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (“Topic 220”)—Reporting of Amounts Reclassified Out ofAccumulated Other Comprehensive Income (“ASU 13-02”). This ASU requires an entity to provide information about the amounts reclassified out ofaccumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income ispresented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income butonly if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that arenot required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAPthat provide additional detail about those amounts. ASU 13-02 is effective prospectively for annual and interim periods beginning after December 15, 2012.The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations, or cash flows.NOTE 2: ACQUISITIONSOn August 15, 2012, the Company acquired all the assets and assumed all the liabilities of DCB in exchange for stock and a minimal amount ofcash for fractional shares. The Company issued 815,447 shares of its common stock with a fair value of $15.00 per share and paid $3,000 in cash. In addition,prior to the acquisition, the Company had acquired shares of DCB at a cost of $241,000. The primary reasons for acquiring DCB were to expand into theCoachella Valley and to increase the size of our operations. The Company contributed all of the assets, assumed liabilities and operations of DCB to theBank. As a result, the Bank acquired branches in Palm Desert and El Centro, California from DCB, and consolidated its existing branch in La Quinta,California into the Palm Desert branch.The Merger is accounted for under the acquisition method of accounting. The acquired assets, assumed liabilities and identifiable intangibleassets are recorded at their respective acquisition date fair values. No goodwill was recognized in this Merger. 76Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 The following table represents the assets acquired and liabilities assumed of DCB as of August 15, 2012 and the fair value adjustments andamounts recorded by the Bank in 2012 under the acquisition method of accounting: DCB Book Value Fair Value Adjustments Fair Value (dollars in thousands) Assets Acquired: Cash and cash equivalents $ 34,894 $- $ 34,894 Securities AFS 9,020 (11) 9,009 Loans, net of deferred fees 96,192 (6,067) 90,125 Allowance for loan losses (2,054) 2,054 - Premises and equipment, net 978 (604) 374 Investment in FHLB stock 588 - 588 Deferred taxes - 3,617 3,617 REO 700 (275) 425 Other assets 518 370 888 Total assets acquired $140,836 $(916) $139,920 Liabilities Assumed: Deposits $126,724 $204 $126,928 Accounts payable and other liabilities 600 (83) 517 Total liabilities assumed 127,324 121 127,445 Excess of assets acquired over liabilities assumed 13,512 (1,037) 12,475 Total $140,836 $ (916) $139,920 Consideration: Stock issued $12,231 Basis in DCB stock purchased, cash paid 244 Total $12,475 In many cases, the fair values of assets acquired and liabilities assumed were determined by estimating the cash flows expected to result fromthose assets and liabilities and discounting them at appropriate market rates. The most significant category of assets for which this procedure was used wasthat of acquired loans. The excess of expected cash flows above the fair value of the majority of loans will be accreted to interest income over the remaininglives of the loans in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310-20 (formerly SFASNo. 91).Certain loans, for which specific credit-related deterioration since origination was identified, are recorded at fair value reflecting the presentvalue of the amounts expected to be collected. Income recognition on these “purchased credit impaired” loans is based on a reasonable expectation about thetiming and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loancollateral indeterminate, remain on nonaccrual status and have no accretable yield. All purchased credit impaired loans were classified as accruing loans as ofand subsequent to the acquisition date. 77Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 For loans acquired from DCB, the contractual amounts due, expected cash flows to be collected and fair value as of the respective acquisitiondates were as follows: Purchased Credit Impaired All Other Acquired Loans (dollars in thousands) Contractual amounts due $ 19,751 $ 105,154 Cash flows not expected to be collected 6,462 1,851 Expected cash flows 13,289 103,303 Interest component of expected cash flows 1,871 24,596 Fair value of acquired loans $11,418 $78,707 In accordance with generally accepted accounting principles there was no carryover of the allowance for loan losses that had been previouslyrecorded by DCB.The Company recorded a deferred income tax asset of $3.6 million related to DCB’s operating loss carry-forward and other tax attributes of DCB,along with the effects of fair value adjustments resulting from applying the acquisition method of accounting.The fair value of savings and transaction deposit accounts acquired from DCB were assumed to approximate their carrying value as theseaccounts have no stated maturity and are payable on demand. Certificates of deposit accounts were valued by comparing the contractual cost of the portfolioto an identical portfolio bearing current market rates. The portfolio was segregated into pools based on remaining maturity. For each pool, the projected cashflows from maturing certificates were then calculated based on contractual rates and prevailing market rates. The valuation adjustment for each pool is equalto the present value of the difference of these two cash flows, discounted at the assumed market rate for a certificate with a corresponding maturity. Thisvaluation adjustment will be accreted to reduce interest expense over the remaining maturities of the respective pools. The Company also recorded a coredeposit intangible, which represents the value of the deposit relationships acquired in the Merger, of $0.4 million. The core deposit intangible will beamortized over a period of 7 years.The Merger agreement provided for contingent consideration to be paid to the shareholders of DCB, in the form of additional shares of commonstock of FFI, if the actual losses (as defined in the agreement) on a pool of loans and REO was less than $4.5 million, as measured on the second anniversaryof the date of the Merger. The actual and expected losses on this pool of loans and REO, as set forth in the Merger Agreement, which is reflected in the fairvalues assigned to these loans and REO, was greater than $4.5 million at the date of the merger and as of December 31, 2013. Therefore, no contingentconsideration has been provided for in the consolidated financial statements. 78Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 Pro Forma Information (unaudited)The following table presents unaudited pro forma information as if the DCB acquisition had occurred on January 1, 2012 after giving effect tocertain adjustments. The unaudited pro forma information for the year ended December 31, 2012 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 theseitems. The net effect of these pro forma adjustments was a $0.1 million decrease in net income for the year ended December 31, 2012. The unaudited proforma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on theassumed date. Pro Forma Summarized Income Statement Data (Unaudited) Pro FormaYear Ended December 31, 2012 (dollars in thousands) Net interest income $ 31,293 Provision for loan losses 2,670 Noninterest income 16,800 Noninterest expenses 38,801 Income before taxes 6,622 Taxes on income 1,967 Net income $4,655 Net income per share: Basic $0.65 Diluted $0.63 The amount of revenues (net interest income and noninterest income) for the period from August 16, 2012 to December 31, 2012 related to theloans, deposits and operations acquired from DCB and included in the results of operations for the year ended December 31, 2012 was approximately $2.3million. The earnings for the period from August 16, 2012 to December 31, 2012 related to the operations acquired from DCB and included in the results ofoperations for the year ended December 31, 2012 was approximately $0.5 million.NOTE 3: FAIR VALUEFair value is the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market forthe asset or liability in an orderly transaction between market participants on the measurement date. Current accounting guidance establishes a fair valuehierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Theguidance describes three levels of inputs that may be used to measure fair value:Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of themeasurement date.Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices inmarkets 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 an entity’s own assumptions about the assumptions that market participants would use inpricing an asset or liability. 79Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fairvalue hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fairvalue measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requiresjudgment, and considers factors specific to the asset or liability.The carrying amounts and estimated fair values of financial instruments are as follows at December 31: Carrying Value Fair Value Measurement Level (dollars in thousands) 1 2 3 Total 2013: Assets: Cash and cash equivalents $ 56,954 $ 56,954 $ - $ - $ 56,954 Securities AFS 59,111 - 59,111 - 59,111 Loans 893,730 - - 933,695 933,695 Investment in FHLB stock 6,721 - - 6,721 6,721 Liabilities: Deposits 802,037 556,171 245,920 - 802,091 Borrowings 141,063 - 134,000 7,063 141,063 2012: Assets: Cash and cash equivalents $63,108 $63,108 $- $- $63,108 Securities AFS 5,813 - 5,813 - 5,813 Loans 735,287 - - 769,235 769,235 Investment in FHLB stock 8,500 - - 8,500 8,500 Liabilities: Deposits 649,741 319,621 330,256 - 649,877 Borrowings 100,000 - 100,000 - 100,000 These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financialinstrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the taxramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in anyof these estimates.The following methods and assumptions were used by management to estimate the fair value of its financial instruments:Cash and Cash Equivalents: The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.Securities Available-for-Sale: Fair values for securities available for sale are generally determined by matrix pricing, which is a mathematicaltechnique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying onthe securities’ relationship to other benchmark quoted securities (Level 2).Loans: Fair values of loans, excluding loans held for sale, are estimated using discounted cash flow analyses, using interest rates currently beingoffered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. The methods utilized to estimate the fair valueof loans do not necessarily represent an exit price. 80Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 Investment in FHLB Stock: The carrying amount approximates fair value, as the stock may be sold back to the FHLB at carrying value and noother market exists for the sale of this stock (Level 3).Deposits: The fair values disclosed for demand deposits, including interest and non-interest demand accounts, savings, and certain types ofmoney market accounts are, by definition, equal to the carrying amount at the reporting date resulting in a Level 1 classification. Fair values for fixed ratecertificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule ofaggregated expected monthly maturities on time deposits resulting in a Level 2 classification.Borrowings: The carrying value of overnight FHLB advances approximates fair values because of the short-term maturity of this instrument,resulting in a Level 2 classification. The $7.1 million term loan is a variable rate loan for which the rate adjusts quarterly, and as such, its fair value is basedon its carrying value resulting in a Level 3 classification.Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regardingcurrent economic conditions, risk characteristics of various financial instruments and other factors. Those estimates that are subjective in nature and involveuncertainties and matters of significant judgment and therefore cannot be determined with precision are included in Level 3. Changes in assumptions couldsignificantly affect the fair values presented.The following table provides quantitative information about the Company’s nonrecurring Level 3 fair value measurements of its REO as ofDecember 31: (dollars in thousands) Valuation Technique Unobservable Input Estimate Used Fair Value 2013: Undeveloped land Third Party Appraisal Selling costs 9.0% $375 2012: Single family residence Third party appraisal lesssenior liens Selling costs 9.0% $225 Undeveloped land Third party appraisal Selling costs 9.0% 425 Total $650 Appraisals are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties)whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Appraisal Department reviews theassumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recentmarket data or industry-wide statistics. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differencesbetween the comparable sales and income data available.In certain cases we use discounted cash flow or similar internal modeling techniques to determine the fair value of our Level 3 assets andliabilities. Use of these techniques requires determination of relevant inputs and assumptions, some of which represent significant unobservable inputs.Accordingly, changes in these unobservable inputs may have a significant impact on fair value. Certain of these unobservable inputs will (in isolation) havea directionally consistent impact on the fair value of the instrument for a given change in that input. Alternatively, the fair value of the instrument may movein an opposite direction for a given change in another input. Where multiple inputs are used within the valuation technique of an asset or liability, a changein one input in a certain direction may be offset by an opposite change in another input having a potentially muted impact to the overall fair value of thatparticular instrument. Additionally, a change in one unobservable input may result in a change to another unobservable input (that is, changes in certaininputs are interrelated to one another), which may counteract or magnify the fair value impact. 81Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 NOTE 4: SECURITIESThe following table provides a summary of the Company’s AFS securities portfolio at December 31: AmortizedCost Gross Unrealized EstimatedFair Value (dollars in thousands) Gains Losses 2013: US Treasury securities $300 $- $- $300 FNMA and FHLB Agency notes 10,496 - (716) 9,780 Agency mortgage-backed securities 50,983 - (1,952) 49,031 Total $61,779 $ - $(2,668) $59,111 2012: US Treasury securities $300 $- $- $300 FHLB Agency Note 5,513 - - 5,513 Total $5,813 $- $- $5,813 The US Treasury Securities are pledged as collateral to the State of California to meet regulatory requirements related to the Bank’s trustoperations.All unrealized losses had been in a continuous loss position less than 12 months as of December 31, 2013. Unrealized losses on FNMA andFHLB agency notes and agency mortgage-backed securities have not been recognized into income because the issuer bonds are of high credit quality,management does not intend to sell and it is not more likely than not that management would be required to sell the securities prior to their anticipatedrecovery, and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the bonds approach maturity. 82Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 The scheduled maturities of securities AFS, other than agency mortgage backed securities, and the related weighted average yield is as follows asof December 31, 2013: (dollars in thousands) Less than 1 Year 1 Through 5 years 5 Through 10 Years After 10 Years Total Amortized Cost: US Treasury securities $300 $- $- $- $300 FNMA and FHLB Agency notes - - 10,496 - 10,496 Total $300 $ $10,496 $- $10,796 Weighted average yield 0.21% 0.00% 1.78% 0.00% 1.74% Estimated Fair Value: US Treasury securities $300 $- $- $- $300 FNMA and FHLB Agency notes - - 9,780 - 9,780 Total $300 $ $9,780 $- $10,080 Agency mortgage backed securities are excluded from the above table because such securities are not due at a single maturity date. The weightedaverage yield of the agency mortgage backed securities as of December 31, 2013 was 2.63%.NOTE 5: LOANSThe following is a summary of our loans as of December 31: (dollars in thousands) 2013 2012 Outstanding principal balance: Loans secured by real estate: Residential properties: Multifamily $405,984 $367,412 Single family 227,096 155,864 Total real estate loans secured by residential properties 633,080 523,276 Commercial properties 154,982 132,217 Land 3,794 7,575 Total real estate loans 791,856 663,068 Commercial and industrial loans 93,255 67,920 Consumer loans 18,484 12,585 Total loans 903,595 743,573 Premiums, discounts and deferred fees and expenses 50 54 Total $903,645 $743,627 83Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 As of December 31, 2013 and 2012, the principal balances shown above are net of unaccreted discount related to loans acquired in anacquisition of $3.1 million and $6.3 million, respectively.In 2012, the Company purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and itwas probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of these purchased credit impaired loansis as follows at December 31: (dollars in thousands) 2013 2012 Outstanding principal balance: Loans secured by real estate: Residential properties $- $2,574 Commercial properties 5,543 5,567 Land 2,331 6,137 Total real estate loans 7,874 14,278 Commercial and industrial loans 2,489 2,621 Consumer loans 260 276 Total loans 10,623 17,175 Unaccreted discount on purchased credit impaired loans (2,945) (5,782) Total $7,678 $11,393 Accretable yield, or income expected to be collected on purchased credit impaired loans, is as follows at December 31: (dollars in thousands) 2013 2012 Beginning balance $1,531 $- New loans purchased - 1,871 Accretion of income (730) (340) Reclassifications from nonaccretable difference 1,879 - Disposals (331) - Ending balance $2,349 $1,531 During 2013, the unaccreted discount related to certain purchased credit impaired loans was increased by $72,000 and recorded as a charge tothe ALLL to account for changes in the projected cash flows of these loans. There were no increases or reversals of the ALLL during 2012 related topurchased credit impaired loans. 84Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 The following table summarizes our delinquent and nonaccrual loans as of December 31: Past Due and Still Accruing Total PastDue andNonaccrual (dollars in thousands) 30–59 Days 60-89 Days 90 Daysor More Nonaccrual Current Total 2013: Real estate loans: Residential properties $- $- $- $1,820 $1,820 $631,260 $633,080 Commercial properties - - 417 598 1,015 153,967 154,982 Land - - 1,480 - 1,480 2,314 3,794 Commercial and industrial loans - 2,744 1,315 344 4,403 88,852 93,255 Consumer loans - - - 132 132 18,352 18,484 Total $- $2,744 $3,212 $2,894 $8,850 $894,745 $903,595 Percentage of total loans 0.00% 0.30% 0.36% 0.32% 0.98% 2012: Real estate loans: Residential properties $- $- $- $146 $146 $523,130 $523,276 Commercial properties 2,012 - - - 2,012 130,205 132,217 Land - - 3,169 524 3,693 3,882 7,575 Commercial and industrial loans 1,188 1,113 11 97 2,409 65,511 67,920 Consumer loans - 147 - - 147 12,438 12,585 Total $3,200 $1,260 $3,180 $767 $8,407 $735,166 $743,573 Percentage of total loans 0.43% 0.17% 0.43% 0.10% 1.13% The level of delinquent loans and nonaccrual loans have been adversely impacted by the loans acquired in an acquisition. As of December 31,2013, of the $6.1 million in loans over 90 days past due, including loans on nonaccrual, $3.1 million, or 51% were loans acquired in an acquisition.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 ninety days or more with respect to principal or interest. The accrual of interest may be continued on a well-secured loan contractually past due ninety days or more with respect to principal or interest if the loan is in the process of collection or collection of theprincipal and interest is deemed probable. The Bank considers a loan to be impaired when, based upon current information and events, it believes it isprobable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The determination of past due,nonaccrual or impairment status of loans acquired in an acquisition, other than loans deemed purchased impaired, is the same as loans we originate.As of December 31, 2013, the Company had one loan with a balance of $0.1 million classified as a troubled debt restructurings (“TDR”) which isincluded as nonaccrual in the table above. This loan was classified as a TDR as a result of a reduction in required principal payments and an extension of thematurity date of the loan. The Company did not have any loans classified as a TDR as of December 31, 2012. 85Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 NOTE 6: ALLOWANCE FOR LOAN LOSSESThe following is a rollforward of the Bank’s allowance for loan losses for the years ended December 31: (dollars in thousands) BeginningBalance Provision forLoan Losses Charge-offs Recoveries EndingBalance 2013: Real estate loans: Residential properties $4,355 $1,802 $- $ - $6,157 Commercial properties 936 561 (57) - 1,440 Commercial and industrial loans 2,841 71 (763) - 2,149 Consumer loans 208 (39) - - 169 Total $8,340 $2,395 $(820) $- $9,915 2012: Real estate loans: Residential properties $3,984 $646 $(275) $- $4,355 Commercial properties 1,218 (282) - - 936 Commercial and industrial loans 1,104 1,737 - - 2,841 Consumer loans 244 (36) - - 208 Total $6,550 $2,065 $(275) $- $8,340 86Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 The following table presents the balance in the allowance for loan losses and the recorded investment in loans by impairment method as ofDecember 31: (dollars in thousands) Allowance for Loan Losses UnaccretedCreditComponentOther Loans Evaluated for Impairment PurchasedImpaired Individually Collectively Total 2013: Allowance for loan losses: Real estate loans: Residential properties $- $6,157 $- $6,157 $36 Commercial properties 190 1,250 - 1,440 290 Land - - - - 26 Commercial and industrial loans 925 1,224 - 2,149 126 Consumer loans - 169 - 169 11 Total $1,115 $8,800 $- $9,915 $489 Loans: Real estate loans: Residential properties $2,248 $630,832 $- $633,080 $3,449 Commercial properties 821 150,053 4,108 154,982 23,968 Land - 2,314 1,480 3,794 1,939 Commercial and industrial loans 2,999 88,209 2,047 93,255 10,354 Consumer loans - 18,441 43 18,484 160 Total $6,068 $889,849 $7,678 $903,595 $39,870 2012: Allowance for loan losses: Real estate loans: Residential properties $- $4,355 $- $4,355 $62 Commercial properties - 936 - 936 617 Land - - - - 129 Commercial and industrial loans 1,536 1,305 - 2,841 302 Consumer loans - 208 - 208 19 Total $1,536 $6,804 $- $8,340 $1,129 Loans: Real estate loans: Residential properties $2,257 $519,288 $1,731 $523,276 $5,121 Commercial properties - 128,035 4,182 132,217 39,862 Land 543 3,818 3,214 7,575 4,521 Commercial and industrial loans 2,736 62,989 2,195 67,920 16,512 Consumer loans - 12,514 71 12,585 324 Total $5,536 $726,644 $11,393 $743,573 $66,340 The column labeled “Unaccreted Credit Component Other Loans” represents the amount of unaccreted credit component discount for the otherloans acquired in the Merger, and the stated principal balance of the related loans. The discount is equal to 1.23% and 1.70% of the stated principal balanceof these loans as of December 31, 2013 and 2012, respectively. 87Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as currentfinancial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Bankanalyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as loans securedby multifamily or commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained.The Bank uses the following definitions for risk ratings:Pass: Loans classified as pass are strong credits with no existing or known potential weaknesses deserving of management’s close attention.Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected,these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of thecollateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterizedby the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.Impaired: A loan is considered impaired, when, based on current information and events, it is probable that the Bank will be unable to collect allamounts due according to the contractual terms of the loan agreement.Additionally, all loans classified as troubled debt restructurings (“TDRs”) are considered impaired. Purchased credit impaired loans are notconsidered impaired loans for these purposes.Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions above and smaller, homogeneous loans notassessed on an individual basis.Based on the most recent analysis performed, the risk category of loans by class of loans is as follows as of December 31: (dollars in thousands) Pass SpecialMention Substandard Impaired Total 2013: Real estate loans: Residential properties $630,832 $- $- $2,248 $633,080 Commercial properties 150,053 - 4,108 821 154,982 Land 2,314 - 1,480 - 3,794 Commercial and industrial loans 88,166 43 2,047 2,999 93,255 Consumer loans 18,309 - 175 - 18,484 Total $889,674 $43 $7,810 $6,068 $903,595 2012: Real estate loans: Residential properties $519,288 $- $1,731 $2,257 $523,276 Commercial properties 127,803 - 4,414 - 132,217 Land 3,818 - 3,214 543 7,575 Commercial and industrial loans 62,000 889 2,295 2,736 67,920 Consumer loans 12,387 127 71 - 12,585 Total $725,296 $1,016 $11,725 $5,536 $743,573 88Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 Impaired loans evaluated individually and any related allowance is as follows as of December 31: With No Allowance Recorded With an Allowance Recorded (dollars in thousands) UnpaidPrincipalBalance RecordedInvestment UnpaidPrincipalBalance RecordedInvestment RelatedAllowance 2013: Real estate loans: Residential properties $2,248 $2,248 $- $- $- Commercial properties 223 223 598 598 190 Land - - - - - Commercial and industrial loans - - 2,999 2,999 925 Consumer loans - - - - - Total $2,471 $2,471 $3,597 $3,597 $1,115 2012: Real estate loans: Residential properties $2,257 $2,257 $- $- $- Commercial properties - - - - - Land 543 543 - - - Commercial and industrial loans - - 2,736 2,736 1,536 Consumer loans - - - - - Total $2,800 $2,800 $2,736 $2,736 $1,536 The weighted average annualized average balance of the recorded investment for impaired loans, beginning from when the loan becameimpaired, and any interest income recorded on impaired loans after they became impaired is as follows for the years ending December 31: 2013 2012 (dollars in thousands) AverageRecordedInvestment InterestIncome after Impairment AverageRecordedInvestment InterestIncome after Impairment Real estate loans: Residential properties $2,250 $32 $2,023 $98 Commercial properties 323 22 - - Land - - 45 - Commercial and industrial loans 2,690 168 225 14 Consumer loans - - - - Total $5,263 $222 $2,293 $112 There was no interest income recognized on a cash basis in either 2013 or 2012 on impaired loans. 89Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 NOTE 7: PREMISES AND EQUIPMENTA summary of premises and equipment is as follows at December 31: (dollars in thousands) 2013 2012 Leasehold improvements and artwork $1,339 $991 Information technology equipment 3,131 2,240 Furniture and fixtures 1,638 972 Total 6,108 4,203 Accumulated depreciation and amortization (2,859) (1,819) Net $3,249 $2,384 NOTE 8: REAL ESTATE OWNEDThe activity in our portfolio of REO is as follows during the periods ending December 31: (dollars in thousands) 2013 2012 Beginning balance $650 $- Loans transferred to REO - 225 REO acquired in Merger - 425 REO chargeoffs 275 - Dispositions of REO - - Ending balance $375 $650 NOTE 9: DEPOSITSThe following table summarizes the outstanding balance of deposits and average rates paid thereon at December 31: 2013 2012 (dollars in thousands) Amount Weighted Average Rate Amount Weighted Average Rate Demand deposits: Noninterest-bearing $217,782 - $131,827 - Interest-bearing 217,129 0.504% 103,085 0.558% Money market and savings 121,260 0.499% 91,278 0.488% Certificates of deposits 245,866 0.606% 323,551 0.732% Total $802,037 0.398% $649,741 0.522% At December 31, 2013, of the $229.9 million of certificates of deposits of $100,000 or more, $207.7 million mature within one year and $22.2 millionmature after one year. Of the $15.9 million of certificates of deposit of less than $100,000, $13.6 million mature within one year and $2.3 million mature afterone year. At December 31, 2012, of the $303.6 million of certificates of deposits of $100,000 or more, $271.4 million mature within one year and $32.2million mature after one year. Of the $20.0 million of certificates of deposit of less than $100,000, $16.3 million mature within one year and $3.7 millionmature after one year. 90Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 NOTE 10: BORROWINGSBorrowings: At December 31, 2013, our borrowings consisted of $134.0 million of overnight FHLB advances and a $7.1 million note payable by FFI.At December 31, 2012, the $100.0 million of borrowings consisted solely of FHLB advances. These FHLB advances were paid in full in the early part ofJanuary 2014 and 2013, respectively, and bore interest rates of 0.06% and 0.28%, respectively. Because the Bank utilizes overnight borrowings, the balanceof outstanding borrowings fluctuates on a daily basis.FHLB advances are collateralized by loans secured by multifamily and commercial real estate properties with a carrying value of $477.5 million as ofDecember 31, 2013. As a matter of practice, the Bank provides substantially all of its qualifying loans as collateral to the FHLB. The Bank’s total borrowingcapacity from the FHLB at December 31, 2013 was $335.2 million. In addition to the $134.0 million borrowing, the Bank had in place $46.0 million ofletters of credit from the FHLB which are used to meet collateral requirements for borrowings from the State of California and local agencies.The Bank also has $2.0 million available unsecured fed funds lines each with Pacific Coast Banker’s Bank and Wells Fargo Bank, and a $15.0 millionavailable unsecured fed funds line at Zions Bank. None of these lines had outstanding borrowings as of December 31, 2013. Combined, the Bank’s unusedlines of credit as of December 31, 2013 were $174.2 million. The average daily balance of borrowings outstanding during 2013 and 2012 was $84.4 millionand $99.3 million, respectively.In the second quarter of 2013, FFI entered into a term loan note agreement to borrow $7.5 million. This note bears interest at a rate of ninety day Liborplus 4.0% per annum. The term of the loan is five years. The loan agreement requires us to make monthly payments of principal and interest, the amounts ofwhich are determined on the basis of a 10 year amortization schedule, with a final payment of the unpaid principal balance, in the amount of approximately$3.8 million, plus accrued but unpaid interest, at the maturity date of the loan in May 2018. We have the right, in our discretion, to prepay the loan at anytime in whole or, from time to time, in part, without any penalties or premium. As security for our repayment of the loan, we pledged all of the common stockof the Bank to the lender. We are required to meet certain financial covenants during the term of the loan, including limits on classified assets andnonperforming assets, the maintenance of required leverage ratios, fixed charge coverage ratios and capital ratios and the maintenance of required liquiditylevels at FFI. As of December 31, 2013, the Company was in compliance with all of these covenants. The term loan note agreement also contains restrictionsagainst disposal of assets, incurrence of debt and the payment of dividends without the prior written consent of the lender. The scheduled payments ofprincipal under this term loan were as follows as of December 31, 2013: (dollars in thousands) Year Ending December 31, 2014 $750 2015 750 2016 750 2017 750 2018 4,063 Total $ 7,063 NOTE 11: SHAREHOLDERS’ EQUITYDuring the first four months of 2013, FFI sold 38,734 shares of its common stock under a supplemental private placement in exchange for $0.6 million.In December of 2013, FFI sold an additional 318,987 shares of its common stock under a supplemental private placement in exchange for $5.7 million.As part of the Merger, the Company issued 815,447 shares of its common stock to the shareholders of DCB. During 2012, 374,438 shares of commonstock were sold by FFI under a supplemental private placement in exchange for $5.6 million. 91Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 FFI is a holding company and does not have any direct operating activities. Any future cash flow needs of FFI are expected to be met by its existingcash and cash equivalents and dividends from its subsidiaries. The Bank is subject to various laws and regulations that limit the amount of dividends that abank can pay without obtaining prior approval from bank regulators. As a de novo institution, the Bank is restricted from paying any dividends to FFIwithout the prior approval from its bank regulators. As of December 31, 2013, FFI’s cash and cash equivalents totaled $5.3 million.NOTE 12: EARNINGS PER SHAREThe following table sets forth the Company’s earnings per share calculations for the years ended December 31: 2013 2012 (dollars in thousands, except per shareamounts) Basic Diluted Basic Diluted Net income $7,851 $7,851 $5,801 $5,801 Basic common shares outstanding 7,424,210 7,424,210 6,603,533 6,603,533 Effect of options and restricted stock 318,005 228,422 Diluted common shares outstanding 7,742,215 6,831,955 Earnings per share $1.06 $1.01 $0.88 $0.85 Based on a weighted average basis, options to purchase 154,814 and 582,472 shares of common stock were excluded for 2013 and 2012, respectively,because their effect would have been anti-dilutive.NOTE 13: STOCK BASED COMPENSATIONIn 2007, the Board of Directors of FFI approved two stock option plans (“the Plans”) that provide for future grants of options to employees anddirectors of the Company for the purchase of up to 1,300,282 shares of the FFI’s common stock. In 2010, the Shareholders approved an increase of 580,000 inthe number of shares available for issuance under one of these plans. The options, when granted, have an exercise price not less than the current market valueof the common stock and expire after ten years if not exercised. If applicable, vesting periods are set at the date of grant and the Plans provide for acceleratedvesting should a change in control occur. The Company recognized stock-based compensation expense of $0.6 million in 2013 and $0.7 million in 2012.The total income tax benefit recorded was $0.2 million in each of 2013 and 2012. Included in these amounts are $0.1 million of expense related to restrictedstock grants in 2012.The fair value of the each option granted in 2013 and 2012 was estimated on the date of the grant using the Black-Scholes option pricing model withthe following assumptions: Expected Volatility 20% Expected Term 6.5 years Expected Dividends None Weighted Average Risk Free Rate: Second quarter 2013 grants 1.320% First quarter 2013 grants 1.130% Third quarter 2012 grants 1.089% Weighted-Average Grant Fair Value: Second quarter 2013 grants $4.67 First quarter 2013 grants $3.46 Third quarter 2012 grants $3.46 92Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 Since the Company does not have any historical stock activity, the expected volatility is based on the historical volatility of similar companies thathave a longer trading history. The expected term represents the estimated average period of time that the options remain outstanding. Since the Companydoes not have sufficient historical data on the exercise of stock options, the expected term is based on the “simplified” method that measures the expectedterm as the average of the vesting period and the contractual term. The risk free rate of return reflects the grant date interest rate offered for zero coupon U.S.Treasury bonds over the expected term of the options.The following table summarizes the activities in the Plans during 2013: (dollars in thousands exceptper share amounts) Options Granted Weighted AverageExercise Price perShare Weighted AverageRemainingContractual Term Aggregate Intrinsic Value Balance: December 31, 2012 1,423,965 $12.36 Options granted: First quarter 19,000 15.00 Second quarter 7,000 17.14 Options exercised - - Options forfeited (18,998) 15.53 Balance: December 31, 2013 1,430,967 12.37 5.25 Years $8,051 Options exercisable 1,249,960 $11.98 4.83 Years $7,527 As of December 31, 2013, The Company had $0.5 million of unrecognized compensation costs related to outstanding stock options which will berecognized through March 2016, subject to the vesting requirements for these stock options.The following table summarizes the activities in the Plans during 2012: (dollars in thousands exceptper share amounts) Options Granted Weighted AverageExercise Price perShare Weighted AverageRemainingContractual Term Aggregate Intrinsic Value Balance: December 31, 2011 1,364,467 $12.23 Options granted: Third quarter 70,000 15.00 Options exercised - - Options forfeited (10,502) 13.57 Balance: December 31, 2012 1,423,965 12.36 6.21 Years $3,845 Options exercisable 1,102,072 $11.55 5.44 Years $3,845 In 2011, the Company entered into agreements with five of its independent directors which provided for the issuance of 3,000 shares of restrictedcommon stock of FFI to each of these directors. For each director, 1,000 shares vested in 2011 and the remaining shares vested over a two year period subjectto continued service as a director. In 2011, the Company entered into an agreement with an officer which provided for the issuance of 3,000 shares ofrestricted common stock of FFI and in 2010, the Company entered into an agreement with an officer which provided for the issuance of 11,000 shares ofrestricted common stock of FFI. These shares vest over a three year period subject to continued employment. 93Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 The following table provides a summary of the non-vested restricted stock grants issued by the Company under the Plans for the periods endedDecember 31: 2013 2012 Shares WeightedAverage Grant Date Fair Value Shares WeightedAverage Grant Date Fair Value Balance: January 1 10,667 $15.00 20,334 $15.00 New stock grants 6,666 18.00 - - Shares vested and issued (9,667) 15.00 (9,667) 15.00 Shares forfeited - - - - Balance December 31 7,666 17.61 10,667 15.00 The fair value of the shares vested and issued was $0.1 million in each of 2013 and 2012.NOTE 14: 401(k) PROFIT SHARING PLANThe Company’s employees participate in the Company’s 401(k) profit sharing plan (the “401k Plan”) that covers all employees eighteen years of ageor older who have completed three months of employment. Each employee eligible to participate in the 401k Plan may contribute up to 100% of his or hercompensation, subject to certain statutory limitations. In 2013 and 2012, the Company matched 50% of the participant’s contribution up to 5% of employeecompensation, which is subject to the plan’s vesting schedule. The Company contributions of $396,000 and $330,000 were included in Compensation andBenefits for 2013 and 2012, respectively. The Company may also make an additional profit sharing contribution on behalf of eligible employees. No profitsharing contributions were made in 2013 or 2012.NOTE 15: INCOME TAXESThe Company is subject to federal income tax and California franchise tax. Income tax expense (benefit) was as follows for the years endedDecember 31: (dollars in thousands) 2013 2012 Current expense: Federal $2,505 $3,302 State 392 756 Deferred expense (benefit): Federal 992 (554) State 354 (210) Benefit of net operating loss carryforwards (172) (282) Change in valuation allowance (2,441) (1,005) Total $1,630 $2,007 94Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 The following is a comparison of the federal statutory income tax rates to the Company’s effective income tax rate for the years ended December 31: 2013 2012 (dollars in thousands) Amount Rate Amount Rate Income before taxes $9,481 $7,808 Federal tax statutory rate $3,224 34.00% $2,655 34.00% State tax, net of Federal benefit 664 7.00% 526 6.73% Change in valuation allowance (2,441) (25.74)% (1,005) (12.87)% Other items, net 183 1.93% (169) (2.16)% Effective tax rate $1,630 17.19% $2,007 25.70% Deferred taxes are a result of differences between income tax accounting and generally accepted accounting principles with respect to income taxrecognition. The following is a summary of the components of the net deferred tax assets recognized in the accompanying consolidated balances sheet atDecember 31: (dollars in thousands) 2013 2012 Deferred tax assets (liabilities) Allowance for loan and REO losses $4,197 $3,326 Operating loss carryforwards 2,948 3,085 Market valuation: Loans and REO from Merger 1,799 3,305 Stock-based compensation 1,402 1,729 Accumulated other comprehensive income 1,098 - Organizational expenses 367 411 Depreciation (713) (365) Prepaid expenses (329) (141) Other 1,283 1,318 Total 12,052 12,668 Valuation allowance - (2,613) Net deferred tax assets $12,052 $10,055 As part of the merger with DCB, the Company acquired operating loss carryforwards of approximately $14.0 million. These operating losscarryforwards are subject to limitation under Section 382 of the Internal Revenue Service Code and expire in 2032. As a result, the Company will only beable to utilize operating loss carryforwards of $7.7 million, ratably over a period of 20 years. Due to the uncertainty in realizing future earnings over anextended period of 20 years, at December 31, 2012, a valuation allowance of $2.6 million was established against the operating loss carryforward benefits notrealizable until after 12/31/15. At December 31, 2013, based on our continued strong earnings results and updated projections of earnings in future years, thevaluation allowance was eliminated.The Company has no other operating loss carryforwards. The Company is subject to federal income tax and franchise tax of the state of California.Income tax returns for the periods 2010 through 2013 are open to audit by federal authorities and for the period 2009 through 2013 by California stateauthorities. 95Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 NOTE 16: COMMITMENTS AND CONTINGENCIESLeasesThe Company leases certain facilities for its corporate offices and branch operations under non-cancelable operating leases that expire through 2020.Lease expense for 2013 and 2012 was $2.7 million and $1.8 million, respectively. Future minimum lease commitments under all non-cancelable operatingleases at December 31, 2013 are as follows: (dollars in thousands) Year Ending December 31, 2014 $2,950 2015 2,895 2016 2,708 2017 2,629 2018 and after 3,680 Total $ 14,862 Financial Instruments with Off-Balance Sheet RiskIn the normal course of business, the Bank is a party to financial instruments with off-balance sheet risk to meet the financing needs of customers and toreduce exposure to fluctuations in interest rates. These financial instruments may include commitments to extend credit and standby and commercial lettersof credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.Standby and commercial letters of credit and financial guarantees are conditional commitments issued by the Bank to guaranty the performance of a customerto a third party. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The following tableprovides the off-balance sheet arrangements of the Bank as of December 31, 2013: (dollars in thousands) Commitments to fund new loans $3,580 Commitments to fund under existing loans, lines of credit 88,292 Commitments under standby letters of credit 1,527 Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent futurecash requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. TheBank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank uponextension of credit, is based on management’s credit evaluation of the counter-party. Collateral held varies but may include deposits, marketable securities,accounts receivable, inventory, property, plant and equipment, motor vehicles and real estate.LitigationFrom time to time, the Company may become party to various lawsuits, which have arisen in the course of business. While it is not possible to predictwith certainty the outcome of such litigation, it is the opinion of management, based in part upon opinions of counsel, that the liability, if any, arising fromsuch lawsuits would not have a material adverse effect on the Company’s financial position or results of operations. 96Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 NOTE 17: RELATED-PARTY TRANSACTIONSLoans to related parties, including directors and executive officers of the Company and their affiliates, were as follows for the periods presented: (dollars in thousands) 2013 2012 Balance, January 1 $1,359 $1,375 New loans and advances - - Principal payments received (33) (16) Balance, December 31 $1,326 $1,359 Interest earned from the loans was $0.1 million in each of 2013 and 2012.The Bank held $2.1 million and $2.4 million of deposits from related parties, including directors and executive officers of the Company and theiraffiliates, as of December 31, 2013 and December 31, 2012, respectively. Interest paid on these deposit accounts was $5,000 in 2013 and $7,000 in 2012.During 2013 and 2012, an entity in which one of the directors of the Company had an ownership interest, provided insurance brokerage services to theCompany. Broker fees earned by this entity for the services it provided to the Company were $0.1 million in each of 2013 and 2012.NOTE 18: REGULATORY MATTERSFFI and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capitalrequirements can initiate certain mandatory, and possible additional discretionary, actions by regulators that, if undertaken, could have a direct materialeffect on FFI and the Bank’s financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Companyand the Bank must meet specific capital guidelines that involve quantitative measures of FFI and the Bank’s assets, liabilities, and certain off-balance sheetitems as calculated under regulatory accounting practices. FFI’s and the Bank’s capital amounts and classification are also subject to qualitative judgmentsby the regulators about components, risk weightings, and other factors. Quantitative measures established by the regulators to ensure capital adequacyrequire FFI and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) torisk-weighted assets (as defined), and of Tier 1 capital (as defined) to assets (as defined). Management believes, as of December 31, 2013 that FFI and theBank met all capital adequacy requirements. 97Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 The following table presents the regulatory standards for well-capitalized institutions and the capital ratios for FFI and the Bank as of: Actual For CapitalAdequacy Purposes To Be Well-CapitalizedUnder Prompt CorrectiveAction Provisions (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio FFI December 31, 2013 Tier 1 leverage ratio $85,268 8.67% $39,321 4.00% Tier 1 risk-based capital ratio 85,268 13.04% 26,150 4.00% Total risk-based capital ratio 93,465 14.30% 52,300 8.00% December 31, 2012 Tier 1 leverage ratio $72,909 9.19% $31,730 4.00% Tier 1 risk-based capital ratio 72,909 13.60% 21,446 4.00% Total risk-based capital ratio 79,636 14.85% 42,891 8.00% BANK December 31, 2013 Tier 1 leverage ratio $84,243 8.61% $39,115 4.00% $48,894 5.00% Tier 1 risk-based capital ratio 84,243 12.95% 26,017 4.00% 39,025 6.00% Total risk-based capital ratio 92,399 14.21% 52,034 8.00% 65,042 10.00% December 31, 2012 Tier 1 (core) capital ratio $67,515 8.56% $31,563 4.00% $39,454 5.00% Tier 1 risk-based capital ratio 67,515 12.68% 21,292 4.00% 31,939 6.00% Total risk-based capital ratio 74,194 13.94% 42,585 8.00% 53,231 10.00% As of December 31, 2013, the Bank is categorized as well-capitalized under these regulatory standards. There are no conditions or events that haveoccurred since December 31, 2013 that management believes have changed the Bank’s category. As a condition of approval of the acquisition of DCB, FFIcontributed $5.0 million to the Bank, and the Bank will be required to maintain a Tier 1 Leverage Ratio of 8.5% through August 15, 2014.NOTE 19: OTHER EXPENSESThe following items are included in the consolidated income statements as other expenses for the years ended December 31: (dollars in thousands) 2013 2012 Regulatory assessments $650 $694 Directors’ compensation expenses 604 600 98Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 NOTE 20: SEGMENT REPORTINGIn 2013 and 2012, the Company had two reportable business segments: Banking (FFB) and Wealth Management (FFA). The results of FFI and anyelimination entries are included in the column labeled Other. The following tables show key operating results for each of our business segments used to arriveat our consolidated totals for the years ended December 31: (dollars in thousands) Banking WealthManagement Other Total 2013: Interest income $39,181 $- $- $39,181 Interest expense 3,288 - 219 3,507 Net interest income 35,893 - (219) 35,674 Provision for loan losses 2,395 - - 2,395 Noninterest income 3,514 16,715 (405) 19,824 Noninterest expense 24,302 17,400 1,920 43,622 Income (loss) before taxes on income $12,710 $(685) (2,544) $9,481 2012: Interest income $30,874 $- $- $30,874 Interest expense 3,145 - - 3,145 Net interest income 27,729 - - 27,729 Provision for loan losses 2,065 - - 2,065 Noninterest income 2,599 14,250 (229) 16,620 Noninterest expense 18,280 14,896 1,300 34,476 Income (loss) before taxes on income $9,983 $(646) $(1,529) $7,808 99Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 The following tables show the financial position for each of our business segments, and of FFI which is included in the column labeled Other, and theeliminating entries used to arrive at our consolidated totals at December 31: (dollars in thousands) Banking WealthManagement Other Eliminations Total 2013: Cash and cash equivalents $56,795 $2,134 $5,294 $(7,269) $56,954 Securities AFS 59,111 - - - 59,111 Loans, net 893,364 366 - - 893,730 Premises and equipment 2,286 863 100 - 3,249 FHLB Stock 6,721 - - - 6,721 Deferred taxes 11,426 865 (239) - 12,052 REO 375 - - - 375 Other assets 3,840 717 88,455 (87,844) 5,168 Total assets $1,033,918 $4,945 $93,610 $(95,113) $1,037,360 Deposits $809,306 $- $- $(7,269) $802,037 Borrowings 134,000 - 7,063 - 141,063 Intercompany balances 857 248 (1,105) - - Other liabilities 4,018 2,590 890 - 7,498 Shareholders’ equity 85,737 2,107 86,762 (87,844) 86,762 Total liabilities and equity $1,033,918 $4,945 $93,610 $(95,113) $1,037,360 2012: Cash and cash equivalents $62,965 $1,895 $2,178 $(3,930) $63,108 Securities AFS 5,813 - - - 5,813 Loans, net 734,778 509 - - 735,287 Premises and equipment 1,661 657 66 - 2,384 FHLB Stock 8,500 - - - 8,500 Deferred taxes 8,734 981 340 - 10,055 REO 650 - - - 650 Other assets 3,509 638 71,058 (70,493) 4,712 Total assets $826,610 $4,680 $73,642 $(74,423) $830,509 Deposits $653,671 $- $- $(3,930) $649,741 Borrowings 100,000 - - - 100,000 Intercompany balances 1,451 205 (1,656) - - Other liabilities 3,302 2,168 1,718 - 7,188 Shareholders’ equity 68,186 2,307 73,580 (70,493) 73,580 Total liabilities and equity $826,610 $4,680 $73,642 $(74,423) $830,509 100Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 NOTE 21: QUARTERLY FINANCIAL INFORMATION (Unaudited) (dollars in thousands,except per share amounts) FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Full Year Year Ended December 31, 2013: Interest income $9,004 $10,350 $9,524 $10,303 $39,181 Interest expense 812 862 886 947 3,507 Net interest income 8,192 9,488 8,638 9,356 35,674 Provision for loan losses 622 686 445 642 2,395 Noninterest income 4,533 5,210 5,088 4,993 19,824 Noninterest expense 10,396 11,025 10,938 11,263 43,622 Income before taxes on income 1,707 2,987 2,343 2,444 9,481 Taxes on income 649 1,135 890 (1,044) 1,630 Net income $1,058 $1,852 $1,453 $3,488 $7,851 Income per share Basic $0.14 $0.25 $0.20 $0.47 $1.06 Diluted $0.14 $0.24 $0.19 $0.44 $1.01 Year Ended December 31, 2012: Interest income $6,663 $7,054 $7,972 $9,185 $30,874 Interest expense 725 740 835 845 3,145 Net interest income 5,938 6,314 7,137 8,340 27,729 Provision for loan losses 330 745 693 297 2,065 Noninterest income 3,771 4,074 4,010 4,765 16,620 Noninterest expense 7,670 8,054 8,886 9,866 34,476 Income before taxes on income 1,709 1,589 1,568 2,942 7,808 Taxes on income 632 588 580 207 2,007 Net income $1,077 $1,001 $988 $2,735 $5,801 Income per share Basic $0.17 $0.16 $0.15 $0.37 $0.88 Diluted $0.17 $0.16 $0.14 $0.36 $0.85 101Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 NOTE 22: PARENT ONLY FINANCIAL STATEMENTSBALANCE SHEETS (dollars in thousands) December 31, 2013 2012 ASSETS Cash and cash equivalents $5,294 $2,178 Premises and equipment, net 100 66 Deferred taxes (239) 340 Investment in subsidiaries 87,844 70,493 Intercompany receivable 1,105 1,656 Other assets 611 565 Total Assets $94,715 $75,298 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Borrowings $7,063 $- Accounts payable and other liabilities 890 1,718 Total Liabilities 7,953 1,718 Shareholders’ Equity Common Stock 8 7 Additional paid-in-capital 76,334 69,434 Retained earnings 11,990 4,139 Accumulated other comprehensive income (loss), net of tax (1,570) - Total Shareholders’ Equity 86,762 73,580 Total Liabilities and Shareholders’ Equity $94,715 $75,298 INCOME STATEMENTS (dollars in thousands) For the Year Ended December 31, 2013 2012 Interest expense—borrowings $219 $- Noninterest income—earnings from investment in subsidiaries 9,883 5,701 Noninterest expense: Compensation and benefits 613 386 Occupancy and depreciation 66 19 Professional services and marketing costs 1,120 770 Other expenses 526 354 Total noninterest expense 2,325 1,529 Income before taxes on income 7,339 4,172 Taxes on income (512) (1,629) Net income $7,851 $5,801 102Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFIRST FOUNDATION INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2013 and 2012 STATEMENTS OF COMPREHENSIVE INCOME (dollars in thousands) For the Year Ended December 31, 2013 2012 Net income $7,851 $5,801 Other comprehensive income (loss): Unrealized holding gains (losses) on securities arising during the period (2,668) 14 Other comprehensive income (loss) before tax (2,668) 14 Income tax (expense) benefit related to items of other comprehensive income 1,098 - Other comprehensive income (loss) (1,570) 14 Total comprehensive income $6,281 $5,815 STATEMENTS OF CASH FLOWS (dollars in thousands) For the Year EndedDecember 31, 2013 2012 Cash Flows from Operating Activities: Net income $7,851 $5,801 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Earnings from investment in subsidiaries (9,883) (5,701) Stock–based compensation expense 41 60 Deferred tax liability (benefit) 579 (865) Increase in other assets (46) (120) (Increase) decrease in accounts payable and other liabilities (828) 1,230 Net cash provided by (used in) operating activities (2,286) 405 Cash Flows from Investing Activities: Investment in subsidiaries (8,500) (5,494) Purchase of premises and equipment (34) (14) Net cash used in investing activities (8,534) (5,508) Cash Flows from Financing Activities: Proceeds from borrowings 7,500 - Paydowns of borrowings (437) - Proceeds from the sale of stock, net 6,322 5,617 Intercompany accounts, net decrease (increase) 551 (288) Net cash provided by financing activities 13,936 5,329 Increase (decrease) in cash and cash equivalents 3,116 226 Cash and cash equivalents at beginning of year 2,178 1,952 Cash and cash equivalents at end of year $5,294 $2,178 103Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresDisclosure Controls and ProceduresWe maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under theExchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such informationis accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisionsregarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any system of controlsand procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours aredesigned to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls andprocedures.As required by SEC rules, an evaluation was performed under the supervision and with the participation of the Chief Executive Officer and ChiefFinancial Officer of the effectiveness as of December 31, 2013, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) under theExchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2013, the Company’sdisclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that we file underthe Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information isaccumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regardingrequired disclosure.Changes in Internal ControlsThere was no change in the Company’s internal control over financial reporting in the quarter ended December 31, 2013 that has materiallyaffected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.Assessments of Internal Controls. This annual report does not include a report of management’s assessment regarding internal control overfinancial reporting or an attestation report of the Company’s registered public accounting firm due to a transition period established by SEC rules applicableto new public companies.Item 9B. Other Information.None. 104Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPART IIIItem 10. Directors, Executive Officers and Corporate Governance.Executive Officers and DirectorsThe following table sets forth the name, age and position with the Company of each of the persons who serve as directors and executive officersof the Company. The business address for all of these individuals is 18101 Von Karman Avenue, Suite 700, Irvine, California 92612. Name Age PositionUlrich Keller, Jr., CFP 57 Executive Chairman and DirectorScott Kavanaugh 53 Director, Vice Chairman of the Board and Chief Executive OfficerJohn Hakopian 45 President of FFA and DirectorDouglas Freeman, J.D., LL.M. 68 Senior Managing Director of FFA and DirectorJames Brakke(1) 71 DirectorMax Briggs, CFP(2)(3) 48 DirectorVictoria Collins, Ph.D., CFP 71 DirectorMichael Criste, J.D. 70 DirectorWarren Fix(2) 75 DirectorGerald Larsen, J.D., LL.M., CFP, CPA(1)(2) 65 DirectorMitchell Rosenberg, Ph.D.(1)(3) 60 DirectorJacob Sonenshine, J.D., CFA(3) 43 DirectorHenri Tchen(2) 67 DirectorJohn Michel 54 Executive Vice President and Chief Financial OfficerDavid Rahn 65 President of FFB (1)Member of the compensation committee.(2)Member of the audit committee.(3)Member of the nominating and corporate governance committee.Set forth below is a biographical summary of the experience of the members of our Board of Directors and our executive officers.DirectorsUlrich Keller, Jr., CFP. Mr. Keller is one of the founders of the Company and currently is the Executive Chairman of FFI and FFA. Mr. Kellerserved as Chief Executive Officer (or CEO) of FFA from 1990, when it began operations as a fee-based investment advisor, until December 2009, at whichtime he became its Executive Chairman. In 2007, Mr. Keller became the Executive Chairman of FFI and from June 2007 until December 2009 he also servedas the CEO of FFI. Mr. Keller earned a Bachelor of Science degree in Finance from San Diego State University. Mr. Keller currently serves as a trustee of theUniversity of California, Irvine (or UCI) Foundation, as a consultant to the Investment Advisory Committee of The Board of Regents of the University ofCalifornia and as a member of the Dean’s Advisory Board for the Center for Investment and Wealth Management at the Paul Merage School of Business atUCI. As one the founders of the Company, who played a key role in the development and successful implementation of our business strategy of providinghigh quality and personalized wealth management and investment advisory services to our clients and the expansion of the financial services we offer ourclients, Mr. Keller brings to the Board considerable knowledge and valuable insights about the wealth management and investment advisory business andthe Southern California financial services market.Scott Kavanaugh. Mr. Kavanaugh is, and since December 2009 has been the CEO of FFI, and from June 2007 until December 2009, he served asPresident and Chief Operating Officer of FFI. Mr. Kavanaugh has been the Vice-Chairman of FFI since June 2007. He also is, and since September 2007 hasbeen, the Chairman and CEO of FFB. Mr. Kavanaugh was a founding stockholder and served as an Executive Vice President and Chief Administrative Officer 105Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentsand a member of the board of directors of Commercial Capital Bancorp, Inc. the parent holding company of Commercial Capital Bank. During his tenure asan executive officer and director of Commercial Capital BanCorp, that company became a publicly traded company, listed on NASDAQ, and its total assetsgrew to more than $1.7 billion. From 1998 until 2003, Mr. Kavanaugh served as the Executive Vice President and Chief Operating Officer and a director ofCommercial Capital Mortgage. From 1993 to 1998, Mr. Kavanaugh was a partner and head of trading for fixed income and equity securities at Great PacificSecurities, Inc., a west coast-based regional securities firm. Mr. Kavanaugh earned a Bachelor of Science degree in Business Administration and Accountingat the University of Tennessee and a Masters of Business Administration (or MBA) degree in Information Systems at North Texas State University.Mr. Kavanaugh is, and since 2008 has been, a member of the board of directors of Colorado Federal Savings Bank and its parent holding company, SilverQueen Financial Services, Inc. Mr. Kavanaugh also is, and since December 2013 has been, a member of the boards of directors of NexBank SSB and its parentholding company, NexBank Capital, Inc. From January 2000 until June 2012, Mr. Kavanaugh served as Independent Trustee and Chairman of the AuditCommittee and from June 2012 until December 2013 served as Chairman of the Highland Mutual Funds, a mutual fund group managed by Highland CapitalManagement. The Board believes that Mr. Kavanaugh’s extensive experience as an executive officer of banks and other financial services organizations,combined with his experience as a director of both public and private companies, qualifies him to serve as a member of our Board of Directors. In addition,because Mr. Kavanaugh is the Company’s Chief Executive Officer, the Board of Directors believes that his participation as a member of the Board facilitatescommunication between the outside Board members and management.John Hakopian. Mr. Hakopian is, and since April 2009 has been, the President of FFA and is and since 2007 has been a member of theCompany’s Board of Directors. Mr. Hakopian was one of the founders of the Company in 1990, when it began its operations as a fee-based investmentadvisor and served as its Executive Vice President and Co-Portfolio Manager from 1994 through April 2009. Mr. Hakopian earned a Bachelor of Arts degreein Economics from UCI and a MBA degree in Finance from the University of Southern California. Mr. Hakopian’s extensive knowledge of the Company’swealth management and investment advisory business makes him a valuable member of the Board who is able to provide the outside Board members withinsight in to the operations and risks of that business.Douglas Freeman, J.D., LL.M. Mr. Freeman has served as a director of FFI since 2007. He also is, and since February 2008 has served, as seniormanaging director of FFA, responsible for the consulting services of FFA. Mr. Freeman currently serves as Adjunct Professor of Law at UCI’s School of Law.From 1976 to 2008, Mr. Freeman was a partner of the Los Angeles-based law firm, Freeman, Freeman & Smiley, LLP. Mr. Freeman earned a BusinessAdministration degree from Stanford University, a Doctor of Jurisprudence (or J.D.) degree from University of California, Los Angeles, and a Masters of Law(or LL.M.) degree in Taxation from the University of San Diego. We believe Mr. Freeman’s extensive experience in legal and estate matters allows him toprovide valuable insight to the Board in these areas.James Brakke. Mr. Brakke has served as a director of FFI since 2007. From 2001 until 2006 Mr. Brakke served as a director of CommercialCapital Bancorp, Inc. and from 2000 until 2006, Mr. Brakke served as a director of Commercial Capital Bank. Mr. Brakke is, and since 2001 has been,Executive Vice President and director of the Dealer Protection Group, an insurance brokerage firm that Mr. Brakke co-founded, which specializes inproviding insurance products to the automobile industry. Mr. Brakke also serves as a salesperson for Brakke-Schafnitz Insurance Brokers, a commercialinsurance brokerage and consulting firm that he co-founded and where he was President and Chairman from 1971 until 2009. Mr. Brakke currently serves as adirector of Maury Microwave Corporation and as Chairman of Advanced Wellness and Lasers. Mr. Brakke earned a Bachelor of Science degree in Businessand Finance from Colorado State University. Mr. Brakke’s experience as a director of Commercial Capital BanCorp and its wholly owned bankingsubsidiary, Commercial Capital Bank is valuable to other independent member of the Company’s Board of Directors. Moreover, we believe Mr. Brakke’sextensive knowledge of the insurance industry provides valuable insight and support for our insurance operations.Max Briggs, CFP. From 2005 to 2012, Mr. Briggs served as Chairman of the Board of DCB. He was elected as a director of the Companyfollowing our acquisition of DCB in August 2012. Mr. Briggs is, and since 1996 has been the President and CEO of FLC Capital Advisors, a wealthmanagement firm with over $300 million of assets under management. Mr. Briggs earned a Business Administration and Finance degree from StetsonUniversity. We believe Mr. Briggs is a valuable member of our Board of Directors due to his knowledge of the banking business, gained from his service asChairman of DCB, particularly as conducted in Palm Desert, California and its surrounding communities, 106Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentswhere we have two of our wealth management offices, and his experience as President and CEO of a wealth management firm.Victoria Collins, Ph.D., CFP. Dr. Collins is and has been a director of FFI since 2007. Beginning in 1990, Dr. Collins served as an executiveofficer of FFA, including as an Executive Vice President from 1990 until 2009 and as a Senior Managing Director from 2009, until her retirement inDecember 2011. Dr. Collins currently serves on the Dean’s Advisory Board for the Center for Investment and Wealth Management at the Paul Merage Schoolof Business at UCI. Dr. Collins earned a Bachelor’s of Administration degree in Psychology from San Diego State University, a Master of Arts degree inEducational Psychology from St. Mary’s College and a Doctor of Philosophy (or Ph.D.) degree in Cognitive Psychology from the University of California,Berkeley. Dr. Collins’ found that her knowledge of psychology was invaluable in her role as an executive officer and a senior wealth manager at FFA. Webelieve that the Board has found that Dr. Collins brings to the Board valuable insights about the FFA’s business from her knowledge of and her experience inwealth management, and her management experience at FFA.Michael Criste. J.D. From 2005 to 2012, Mr. Criste was a director of DCB. He was elected as a director of the Company following our acquisitionof DCB in August 2012. From 1992 until his retirement from the practice of law in 2005, Mr. Criste was a partner in the Palm Desert law firm of Criste,Pippin & Golds, LLP. Mr. Criste earned a Bachelor of Science degree in Civil Engineering, an MBA degree from the University of Maryland and a J.D. degreefrom Pennsylvania State University. We believe Mr. Criste is a valuable member of our Board of Directors as a result of his knowledge of the bankingbusiness, gained from his service as a director of DCB, particularly as that business is conducted in Palm Desert, California and its surrounding communities,where we have two of our wealth management offices.Warren Fix. Mr. Fix has served as a director of FFI since 2007. Mr. Fix is, and since 1992 has been, a partner in The Contrarian Group, a businessinvestment and management company. From 1995 to 2008, Mr. Fix served in various management capacities and on the Board of Directors of WCH, Inc.,formerly Candlewood Hotel Company. From 1989 to 1992, Mr. Fix served as President of the Pacific Company, a real estate investment and developmentcompany. From 1964 to 1989, Mr. Fix held numerous positions at the Irvine Company, including serving as its Chief Financial Officer (or CFO) and adirector. Mr. Fix currently serves as a director of Healthcare Trust of America, a publicly traded real estate investment trust, Clark Investment Group, AccelNetworks and CT Realty. Mr. Fix earned a Bachelor of Administration degree from Claremont McKenna College. We believe Mr. Fix brings to the Board hisknowledge of accounting as a result of his long tenure as CFO of the Irvine Company and his experience as an independent director of both public andprivate companies.Gerald Larsen, J.D, LL.M, CFP, CPA. Mr. Larsen has served as a director of FFI since 2013. Mr. Larsen is, and since 1992 has served as thePresident, Principal and owner of the law firm of Larsen & Risley, located in Costa Mesa, California. Mr. Larsen’s law practice focuses on federal and statetaxation, probate, estate planning, partnerships and corporate law. Mr. Larsen earned a Bachelor of Science degree in Accounting from California StateUniversity, Northridge, a J.D. degree from Stetson University and a LL.M. degree from the University of Florida. We believe that Mr. Larsen’s extensiveexperience as a tax and estate planning lawyer provides the Board with valuable insights regarding the tax and estate planning aspects of wealthmanagement.Mitchell Rosenberg, Ph.D. Dr. Rosenberg has served as a director of FFI since 2007. Dr. Rosenberg is, and since 2005 has served as, President andfounder of the consulting firm of M. M. Rosenberg & Associates, which provides executive and organizational development services to technologycompanies, health care businesses and public entities. From 2002 to 2005, Dr. Rosenberg was Chief Executive Officer for The Picerne Group, an internationalinvestment firm investing primarily in real estate, and portfolios of loans. Prior to 2002, Dr. Rosenberg served as Executive Vice President and Director ofBusiness Services for Ameriquest Capital Corporation and directed the Human Resource and Organizational Development functions for Washington MutualBank, American Savings Bank and Great Western Bank. Dr. Rosenberg earned a Bachelor of Science degree in Psychology from Ohio University, a Masters ofScience degree in Industrial Psychology from California State University, Long Beach, and a Ph.D. degree in Psychology with an emphasis on OrganizationalBehavior from Claremont Graduate University. We believe that Dr. Rosenberg’s educational and operational experience in managing the human resource andorganizational development functions of a number of banking organizations and a real estate investment firm provides insight regarding the Company’shuman resource functions, including compensation considerations that impact the growth and expansion of the Company. 107Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsJacob Sonenshine, J.D., CFA. Mr. Sonenshine has served as a director of FFI since 2007. Mr. Sonenshine is, and since 2012, has served as co-chief executive officer of Prell Restaurant Group, an operator of fast casual restaurants. From 2006 until 2012, Mr. Sonenshine served as the President andChief Operating Officer of Professional Retirement Strategy, a retirement planning and entity risk management firm. From 1999 to 2005, Mr. Sonenshine wasPresident and co-founder of RSM EquiCo, an investment bank specializing in mergers and acquisitions of privately-held middle market companies.Mr. Sonenshine currently serves on the Board of New Momentum, LLC, a software firm focusing on brand protection, anti-counterfeiting and channelintegrity. Mr. Sonenshine earned a Bachelor of Science degree in economics and a Bachelor of Administration degree in International Relations from theUniversity of Pennsylvania, and a J.D. degree and a MBA degree from the University of Southern California. We believe Mr. Sonenshine’s experience as CEOof a retirement planning firm is valuable to the Board in overseeing FFA’s wealth management and investment advisory business.Henri Tchen. Mr. Tchen has served as a director of FFI since 2007. Mr. Tchen is, and since 1998 has been, a Vice President and Principal ofSynapse Capital, LLC, a financial management firm focused on investing and advising angel stage medical and high technology company start-ups.Mr. Tchen also serves on the Board of Advisors of Pacific Castle, an owner and operator of shopping centers and as a special mentor to the founders of HarborPacific Capital, a Silicon Valley-based venture capital firm. Prior to 1998, Mr. Tchen had served as the CFO of Kingston Technology Company, as Director ofStrategic Planning and Real Estate for Dah Chong Hong Group in New York City, and as Senior Vice President and Manager of corporate finance for TokaiBank and for Banque Nationale de Paris in New York. Mr. Tchen earned a Bachelor’s degree in Applied Economics from the University of Brussels, Belgium,and a MBA from Columbia University. As a result of his varied experience in the banking industry, in strategic planning and as a chief financial officer, webelieve Mr. Tchen provides the Board with valuable information with respect to various aspects of the Company’s business.The business address for each director and named executive officer listed is 18101 Von Karman Avenue, Suite 700, Irvine, California 92612.Executive OfficersJohn Michel. Mr. Michel, age 55, is, and since September 2007 has served as, the Executive Vice President and CFO of the Company and FFB.Since January 2009, he has also served as the CFO of FFA. Mr. Michel served as the Chief Financial Officer of Sunwest Bank from February 2005 to October2006 and of Fidelity Federal Bank from September 1998 to December 2001. Mr. Michel earned a Bachelor of Business Administration Accounting degreefrom the University of Notre Dame.Dave Rahn. Mr. Rahn, age 65, is, and since September 2007 has been, the President of FFB. From September 2007 to August 2012, Mr. Rahn also served asChief Operating Officer of FFB. From 2004 to 2007, Mr. Rahn served as the Senior Vice President, Southern California Regional Manager for WealthManagement at Bank of the West, from 2000 to 2004 he served as California Market Manager of Private Banking for Comerica Bank, and from 1988 to 2000,Mr. Rahn served as Chief Operating Officer of First American Trust. Mr. Rahn earned a Bachelor of Science degree from California State PolytechnicUniversity, Pomona and a MBA degree from the University of Redlands.Family RelationshipsThere is no family relationship between any director, executive officer or person nominated to become a director or executive director.Section 16(a) Beneficial Ownership Reporting CompliancePursuant to Section 16(a) of the Exchange Act and the related rules and regulations, our directors and executive officers and any beneficialowners of more than 10% of any registered class of our equity securities, are required to file reports of their ownership, and any changes in the ownership, ofour common stock with the SEC pursuant to Section 16(a) of the Securities Exchange Act. To our knowledge, based solely on a review of copies ofSection 16(a) reports furnished to us and on written representations from such reporting persons, during 2013, all of those persons complied with theSection 16(a) filing requirements. 108Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsCodes of Business and Ethical ConductWe have adopted a Code of Business and Ethical Conduct that is applicable to our Chief Executive Officer, Chief Financial Officer and our othersenior financial officers. We also have adopted a Code of Business and Ethical Conduct that is applicable to all of our employees, officers and directors.Copies of both these Codes of Conduct will be provided, without charge, to any shareholder who sends a written request to the Chief Financial Officer of FirstFoundation Inc. at 18101 Von Karman Avenue, Suite 700 Irvine, CA. 92612.Audit Committee.The Board of Directors has established an audit committee the members of which are Mr. Briggs, Mr. Fix, Mr. Larsen and Mr. Tchen. Mr. Fixserves as chairman. The Board of Directors has determined that all of the members of the audit committee are independent within the meaning of theenhanced independence requirements for audit committee members contained in Rule 10A-3 under the Exchange Act and the corporate governance rules thatwould apply to the Company if its shares were listed on the NASDAQ Stock Market. Our Board of Directors also has determined that Mr. Fix and Mr. Briggsmeet the definition of “audit committee financial expert” adopted by the SEC.The Audit Committee has a written charter that specifies its responsibilities, which include oversight of the Company’s financial reportingprocess and system of internal accounting controls, and appointment and oversight of the independent registered public accounting firm engaged to audit theCompany’s financial statements. A copy of the Audit Committee charter will be provided, without charge, to any shareholder who sends a written request tothe Chief Financial Officer of First Foundation Inc. at 18101 Von Karman Avenue, Suite 700 Irvine, CA. 92612.Item 11. Executive CompensationNamed Executive OfficersOur “named executive officers” include our principal executive officer and our two other most highly compensated executive officers. For 2013,our named executive officers were: • Ulrich E. Keller, Jr., who currently serves as our Executive Chairman, as well as a member of the Board of Directors. • Scott F. Kavanaugh, who currently serves as our Chief Executive Officer, as well as Vice Chairman and a member of the Board ofDirectors. Mr. Kavanaugh is our Principal Executive Officer. • John Hakopian, who currently serves as President of FFA, as well as a member of the Board of Directors.Summary Compensation TableThe following table sets forth, for our named executive officers, the compensation earned in the years ended December 31: Name and Position Year Salary(1) Bonus(2) Stock Option Awards Total Ulrich E. Keller, Jr.,Executive Chairman of 2013 $450,000 $180,000 $- $630,000 FFI and FFA 2012 450,000 137,700 - 587,700 Scott F. Kavanaugh, ChiefExecutive Officer of FFI 2013 456,000 (3) 337,500 - 793,500 and FFB, Vice Chairmanof FFI 2012 456,000 (3) 286,900 - 742,900 John Hakopian, 2013 365,000 146,000 - 511,000 President of FFA 2012 365,000 124,100 - 489,100 109Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents(1)Although Messrs. Keller, Kavanaugh and Hakopian are directors of the Company, they do not receive any fees or other compensation for their serviceas directors. (2)In 2013 and 2012, the Board of Directors established target bonus awards for each of the named executive officers, the payment of which was madecontingent on FFI generating earnings, before taxes and bonuses, of $11.3 million in 2013 and $9.7 million in 2012. In 2013, and in 2012, Messrs.Kavanaugh and Hakopian each received 100% of their target bonus awards, the respective amounts of which are set forth in this column. (3)Mr. Kavanaugh’s salary includes a $6,000 per year automobile allowance for use of his personal automobile on Company business.In addition to the compensation set forth in the table above, each executive officer receives group health and life insurance benefits. Incidentaljob related benefits, including employer contributions under the Company’s 401k plan, totaled less than $10,000 for each of the named executive officers in2013.Employment AgreementsEach of our named executive officers is employed under an employment agreement for a term ending on December 31, 2016. Set forth below aresummaries of the terms of those employment agreements. These summaries are not intended to be complete and are qualified in their entirety by reference tothe employment agreements themselves.Material Terms of the Employment AgreementsSalaries. Each employment agreement provides for the payment of a base annual salary as follows: Mr. Keller: $500,000; Mr. Kavanaugh:$550,000; and Mr. Hakopian: $425,000. Those salaries are subject to review and may be increased, but not reduced, by the Board of Directors in itsdiscretion.Participation in Incentive Compensation and Employee Benefit Plans. Each of the employment agreements provides that the named executiveofficer will be entitled to participate in any management bonus or incentive compensation plans adopted by the Board or its Compensation Committee andin any qualified or any other retirement plans, stock option or equity incentive plans, life, medical and disability insurance plans and other benefit planswhich FFI and its subsidiaries may have in effect, from time to time, for all or most of its senior executives.Termination and Severance Provisions. Each employment agreement provides that the named executive officer’s employment may beterminated by the Company with or without cause or due to his death or disability or by the named executive officer with or without good reason. In theevent of a termination of the named executive officer’s employment by the Company without cause or by the named executive officer for good reason, theCompany will become obligated to pay severance compensation to the named executive officer in an amount equal to 12 months of his annual base salary orthe aggregate annual base salary that would have been paid to the named executive officer for the remainder of the term of his employment agreement if suchremaining term is shorter than 12 months (the “Termination Benefits Period”). In addition, during the Termination Benefits Period or until the namedexecutive officer obtains employment with another employer that offers comparable health insurance benefits, whichever period is shorter, the Company willbe obligated to continue to provide any group health plan benefits to the extent authorized by and consistent with 29 U.S.C. § 1161 et seq. (commonlyknown as “COBRA”), subject to payment of premiums by the named executive officer at the active employee’s rate then in effect.Change of Control AgreementsThe Company has entered into Change of Control Severance Agreements with each of its named executive officers. Each of those agreementsprovides that if the Company undergoes a Change of Control (as defined in such Agreements) while the named executive officer is still in the employ of theCompany or one of its subsidiaries and, within the succeeding 12 months, the named executive officer terminates his employment due to the occurrence ofany one of four “Good Reason Events” then the named executive officer will become entitled to receive the following severance compensation: (a) two timesthe sum of (i) his annual base salary as then in effect and (ii) the maximum bonus compensation that the named executive officer could have earned under anybonus or incentive compensation plan in which he was then participating, if any; (b) acceleration of the vesting of any then unvested stock options orrestricted stock held by the named executive officer, and (c) continuation of health insurance benefits for a period that is the shorter of two years or until thenamed executive officer obtains employment with another employer that offers comparable health insurance benefits. However, each Change of ControlAgreement provides that the severance 110Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contentscompensation to which any named executive officer would otherwise receive under his agreement may not, in the aggregate, equal or exceed the amountwhich would result in the imposition of an excise tax pursuant to Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”). Each ofthese Change of Control Agreements also provides that the payment of severance compensation to a named executive officer under such agreement will be inlieu of any severance compensation that the named executive officer would otherwise have been entitled to receive under his employment agreement. EachAgreement also provides that the payment of severance compensation must comply with the applicable requirements of Section 409A of the Code.The Good Reason Events consist of the following: (i) a reduction or adverse change of the named executive officer’s authority; (ii) a materialreduction in the named executive officer’s salary; (iii) a relocation of the named executive officer’s principal place of employment of more than 30 miles; or(iv) a material breach by the Company of its obligations under the named executive officer’s employment agreement. However, each Change of ControlAgreement provides that in order for a named executive officer to become entitled to receive his severance compensation, he must give the Company writtennotice of his election to terminate his employment for Good Reason within 15 days of the date he is notified of the occurrence of the Good Reason Event. Ifthe named executive officer fails to provide such a notice within that 15-day period or if the Company rescinds the action taken that constituted the GoodReason Event following receipt of that notice, the named executive officer will not become entitled and the Company will not be obligated to pay anyseverance compensation by reason of the occurrence of the Good Reason Event.A Change of Control Agreement will terminate in the event the named executive officer’s employment is terminated by the Company for causeor due to his death or disability, or by the named executive officer without Good Reason, irrespective of whether such termination occurs prior to or after theconsummation of a Change of Control of the Company.Outstanding Equity Awards at Fiscal Year EndThe following table sets forth information regarding outstanding stock options held by each of our named executive officers as of December 31,2013, including the number of unexercised vested and unvested stock options. The vesting schedule for each option is shown following this table. None ofour named executive officers has been granted any restricted stock.Outstanding Equity Awards at 2013 Fiscal Year End Option Awards(1) Number of SecuritiesUnderlying Options Name / Grant Date Exercisable Unexercisable Exercise Price(2) Expiration Date(3) Ulrich E. Keller, Jr. 9/17/2007 40,500 - $11.00 9/16/2017 1/27/2009 15,000 - 16.50 1/26/2019 10/25/2011 26,666 13,334 16.50 10/24/2021 Scott F. Kavanaugh 9/17/2007 160,000 - 10.00 9/16/2017 1/27/2009 20,000 - 15.00 1/26/2019 10/25/2011 53,334 26,666 15.00 10/24/2021 John Hakopian 9/17/2007 40,500 - 10.00 9/16/2017 1/27/2009 10,000 - 15.00 1/26/2019 10/25/2011 26,666 13,334 15.00 10/24/2021 (1)Stock options granted to the named executive officers generally vest over three years at the rate of 33 1/3% of the options as of eachanniversary of the date of grant, provided that the executive is still employed by the Company on that anniversary date. 111Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents (2)In accordance with the Company’s Equity Plans, the exercise prices were equal to or greater than 100% of the fair market values of theCompany’s shares as of the respective grant dates. The exercise prices of incentive options granted to Mr. Keller were equal to 110% of thefair market value of a share of common stock on the date of grant because Mr. Keller owns more than 10% of the outstanding common stockof the Company. Since no active market existed for the Company’s shares at each grant date above, in each instance the fair market value wasdetermined by the Board of Directors based primarily on the prices at which the Company had most recently sold shares to investors who werenot affiliated with any of the Company’s directors or executive officers. (3)The expiration date of each option award is 10 years from the date of its grant, subject to earlier termination on a cessation of service with theCompany.Compensation Risk AssessmentWe believe that, although a portion of the compensation provided to our executives and other employees is subject to the achievement ofspecified financial performance criteria, our executive compensation program does not encourage excessive or unnecessary risk-taking. We do not believethat our compensation programs are reasonably likely to have a material adverse effect on us.Director CompensationOnly non-employee directors are entitled to receive compensation for service on the Board and Committees of the Board. The compensationeach director received for their service on the Board and Board Committees is set forth in the following table for the year ended December 31 2013: Fees Earned or Paid in Cash Stock Option Awards All Other Compensation Total James Brakke $60,000 $ - $ - $ 60,000 Max Briggs 60,000 - - 60,000 Victoria Collins 60,000 - - 60,000 Michael Criste 60,000 - - 60,000 Warren D. Fix 60,000 - - 60,000 Gerald Larsen(1) 15,000 - - 15,000 Mitchell M. Rosenberg 60,000 - - 60,000 Jacob Sonenshine 60,000 - - 60,000 Henri Tchen 60,000 - - 60,000 (1)Mr. Larsen was appointed as a director of FFI in October 2013 and this amount represents the fees he received after his appointment.Outstanding Equity Awards.Our non-employee directors also are eligible to receive stock options and restricted stock grants under the Equity Plans (as defined in the sectionentitled “Executive Compensation—Equity Incentive Plans”). No stock options or shares of restricted stock were granted to non-employee directors in 2013.Stock options and shares of restricted stock granted to our non-employee directors generally vest over three years at the rate of 33 1/3% of the options or ofthe restricted shares as of each anniversary of the date of grant, provided that the director is still a member of the Board on the vesting date. 112Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe following table sets forth information regarding outstanding stock options held by each non-employee director as of December 31, 2013,including the number of unexercised vested and unvested stock options. The vesting schedule for each option is shown following this table.Outstanding Equity Awards at 2013 Fiscal Year End Option Awards(1) Number of SecuritiesUnderlying Options Name / Grant Date Exercisable Unexercisable Exercise Price(2) Expiration Date(3) James Brakke 9/17/2007 15,000 - $10.00 9/16/2017 1/27/2009 1,500 - 15.00 1/26/2019 Max Briggs 8/28/2012 5,000 10,000 15.00 8/27/2022 Victoria Collins 9/17/2007 40,500 - $10.00 9/16/2017 1/27/2009 5,000 - 15.00 1/26/2019 Michael Criste 8/28/2012 5,000 10,000 15.00 8/27/2022 Warren D. Fix 9/17/2007 15,000 - $10.00 9/16/2017 1/27/2009 1,500 - 15.00 1/26/2019 Gerald L. Larsen 7/22/2008 10,000 - $15.00 7/21/2018 1/27/2009 1,000 - 15.00 1/26/2019 1/27/2011 - - - - Mitchell M. Rosenberg 9/17/2007 15,000 - $10.00 9/16/2017 1/27/2009 1,500 - 15.00 1/26/2019 Jacob Sonenshine 9/17/2007 15,000 - $10.00 9/16/2017 1/27/2009 1,500 - 15.00 1/26/2019 Henri Tchen 9/17/2007 10,000 - 10.00 9/16/2017 7/22/2008 5,000 - 15.00 7/21/2018 1/27/2009 1,500 - 15.00 1/26/2019 1/27/2011 6,000 - 15.00 1/26/2021 (1)Stock options granted to the directors generally vest over three years at the rate of 33 1/3% of the options as of each anniversary of thedate of grant, provided that the Director is still serving the Company on that anniversary date. (2)In accordance with the Company’s Equity Plans, the exercise prices of these options were equal to 100% of the fair market values of theCompany’s shares as of the respective grant dates. Since no active market existed for the Company’s shares at each grant date above, ineach instance the fair market value was determined by the Board of Directors based primarily on the prices at which the Company hadmost recently sold shares to investors who were not affiliated with any of the Company’s directors or executive officers. (3)The expiration date of each option award is 10 years from the date of its grant, subject to earlier termination on a cessation of service withthe Company. 113Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Security Ownership of Certain Beneficial Owners and ManagementThe following table sets forth certain information with respect to the beneficial ownership of our common stock, as of March 21, 2014 for: • each of our named executive officers; • each of our directors; • all our executive officers and directors as a group; and • each person, or group of affiliated persons, known by us to be the beneficial owner of more than 5% of our outstanding shares of ourcommon stock.For purposes of the table below, the percentage ownership calculations for purposes of determining the beneficial ownership of our directors andexecutive officers are based on 7,733,514 shares of our common stock outstanding as of March 21, 2014.Under the rules and regulations of the SEC, a person is deemed to be the beneficial owner of (i) shares with respect to which that person has,either alone or with others, the power to vote or dispose of those shares; and (ii) shares which that person may acquire on exercise of options or other rights topurchase shares of our common stock at any time during a 60 day period which, for purposes of this table, will end on May 20, 2014. The number of sharessubject to options that are exercisable or may become exercisable during that 60 day period are deemed outstanding for purposes of computing the number ofshares beneficially owned by, and the percentage ownership of, the person holding such options, but not for computing the percentage ownership of anyother shareholder named in this table. Except as otherwise noted below, we believe that the persons named in the table have sole voting and dispositivepower with respect to all shares shown as beneficially owned by them, subject to community property laws where applicable. As of March 21, 2014(1) Name and Title Number of Shares BeneficiallyOwned(2) Percent of Class Ulrich Keller, Jr., Executive Chairman 1,382,751(3) 17.7% Scott Kavanaugh, Vice Chairman and CEO 599,501 7.5% James Brakke, Director 55,117 * Max Briggs, Director 19,474(3) * Victoria Collins, Director 432,709(5) 5.6% Michael Criste, Director 14,159 * Warren Fix, Director 51,167(6) * Douglas Freeman, Director 118,980 1.5% John Hakopian, Director and President of FFA 464,846 6.0% Gerald Larsen, Director 20,700 * Mitchell M. Rosenberg, Director 39,500 * Jacob Sonenshine, Director 39,500 * Henri Tchen, Director 47,500 * All Directors and Executive Officers as a Group (15 persons) 3,555,236 41.5% *Represents less than one (1%) percent of the shares outstanding as of February 28, 2014. (1)This table is based upon information supplied to us by our officers, directors and principal shareholders. Except as otherwise noted, we believe thateach of the shareholders named in the table has sole voting and investment power with respect to all shares of common stock shown as to which he orshe is shown to be the beneficial owner, subject to applicable community property laws. The percentage ownership interest of each individual or groupis based upon the total number of shares of the Company’s common stock outstanding plus the shares which the respective individual or group has theright to acquire within 60 days after March 21, 2014 through the exercise of stock options. 114Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents(2)Includes shares that may be acquired within 60 days of March 21, 2014 pursuant to the exercise of stock options. Shares subject to options are asfollows: Mr. Keller—82,166 shares; Mr. Kavanaugh—233,334 shares; Messrs. Brakke, Fix, Sonenshine and Dr. Rosenberg,—16,500 shares each;Dr. Collins—45,500 shares; Mr. Freeman—46,566 shares; Mr. Hakopian—77,166 shares; Mr. Larsen—11,000 shares; Mr. Tchen—22,500 shares; andDirectors and Executive Officers as a Group—594,232 shares. (3)Includes 100,000 shares beneficially owned by Mr. Keller’s wife, as to which he disclaims beneficial ownership. (4)Includes 3,000 shares beneficially owned by Mr. Briggs wife, as to which he disclaims beneficial ownership. (5)Includes 10,000 shares beneficially owned by Dr. Collins husband, as to which she disclaims beneficial ownership. (6)Includes 5,000 shares beneficially owned by Mr. Fix’s wife, as to which he disclaims beneficial ownership.The following table provides information as of December 31, 2013, regarding the Company’s Equity Plans: Column (a) Column (b) Column (c) Plan Category Number ofSecurities to beIssued uponExercise ofOutstandingOptions,Warrants andRights Weighted-AverageExercise Price ofOutstandingOptions,Warrants andRights(1) Number ofSecuritiesRemainingAvailable forFuture Issuanceunder EquityCompensationPlans(ExcludingSecuritiesReflected inColumn(a)) Equity compensation plans approved by shareholders 1,428,967 $12.37 362,470 Equity compensation plans not approved by shareholders - - - Total 1,428,967 $12.37 362,470 (1) Options are granted at an exercise price equal to or greater than the fair market value per share of our common stock on their respective dates of grant.Item 13. Certain Relationships and Related Transactions, and Director Independence.In addition to the compensation arrangements with directors and executive officers described in “Executive Compensation” above, thefollowing is a description of each transaction since January 1, 2011, and each proposed transaction in which: • we have been or are to be a participant; • the amount involved exceeded or exceeds $120,000; and • any of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or any immediate family member of orperson sharing the household with any of these individuals (other than tenants or employees), had or will have a direct or indirectmaterial interest.Private Placement TransactionsIn December 2013 we sold a total of 318,987 shares of our common stock, at a price of $18.00 per share, in a private placement to a total of 32investors, (the “Private Placement”). Mr. Kavanaugh, our Chief Executive Officer, purchased 19,500 shares in the Private Placement, for which he paid $18.00per share, for a total purchase price of $351,000. 115Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsOrdinary Banking RelationshipsFFB has had, and in the future may have, banking transactions in the ordinary course of its business with directors, principal shareholders andtheir associates, including the making of loans to directors and their associates. Such loans and other banking transactions were, and in the future will be,made on the same terms, including interest rates and collateral securing the loans, as those prevailing at the time for comparable transactions with persons ofcomparable creditworthiness who have no affiliation with the Company, FFB or any other subsidiaries of the Company and will be made only if they do notinvolve more than the normal risk of collectability and do not present any other unfavorable features at the times the loans are made.Indemnification Agreements with our Directors and OfficersWe are incorporated under the laws of the State of California. Section 317 of the CGCL provides that a California corporation may indemnifyany persons who are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal,administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person was an officer, director,employee or agent of such corporation, or is or was serving at the request of such corporation as an officer, director, employee or agent of another corporationor enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonablyincurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he or shereasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable causeto believe that his or her conduct was illegal. Section 317 of the CGCL further authorizes a corporation to purchase and maintain insurance on behalf of anyindemnified person against any liability asserted against and incurred by such person in any indemnified capacity, or arising out of such person’s status assuch, regardless of whether the corporation would otherwise have the power to indemnify such person under the CGCL.Section 204(a)(10) of the CGCL permits a corporation to provide in its articles of incorporation that a director of the corporation shall not bepersonally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duties as a director, except for certain liabilitiesincluding liability for any: • breach of a director’s duty of loyalty to the corporation or its shareholders; • act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; • unlawful payment of dividends or redemption of shares; or • transaction from which the director derives an improper personal benefit.Our articles of incorporation authorize us to, and our amended and restated bylaws provide that we must, indemnify our directors and officers tothe fullest extent authorized by the CGCL and also pay expenses incurred in defending any such proceeding in advance of its final disposition upon deliveryof an undertaking, by or on behalf of an indemnified person, to repay all amounts so advanced if it should be determined ultimately that such person is notentitled to be indemnified under this section or otherwise.As permitted by the CGCL, we have entered into indemnification agreements with each of our directors and certain of our officers. Theseagreements require us to indemnify these individuals to the fullest extent permitted under California law against liabilities that may arise by reason of theirservice to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.We have an insurance policy covering our officers and directors with respect to certain liabilities, including liabilities arising under theSecurities Act of 1933, as amended, or otherwise.Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling theregistrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policyas expressed in the Securities Act and is therefore unenforceable. 116Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsProcedures for Approval of Related Party TransactionsTransactions by FFI or FFB with related parties are subject to regulatory requirements and restrictions. These requirements and restrictionsinclude Sections 23A and 23B of the Federal Reserve Act (which govern certain transactions by a bank with its affiliates) and the Federal Reserve’sRegulation and Regulation O (which governs certain loans by FFB to its executive officers, directors, and principal shareholders). We have adopted policiesto comply with these regulatory requirements and restrictions.In addition our Board has adopted a written policy governing the approval of related party transactions that complies with all applicable SECrequirements. FFI’s related parties include directors (including any nominee for election as a director), executive officers, 5% shareholders and the immediatefamily members of these persons. Our Chief Financial Officer, in consultation with other members of management and outside counsel, as appropriate, willreview potential related party transactions to determine if they are subject to the policy. If so, the transaction will be referred to the Board of Directors forapproval. In determining whether to approve a related party transaction, the Board of Directors will consider, among other factors, the fairness of the proposedtransaction to the Company, the direct or indirect nature of the related party’s interest in the transaction, the appearance of any improper conflict of interestsfor any director or executive officer, taking into account the size of the transaction and the financial position of the related party, whether the transactionwould impair an outside director’s independence, the acceptability of the transaction to our regulators and any possible violations of other of our corporatepolicies.Director IndependenceOur Board of Directors has evaluated the independence of its members based on the definition of independence for purpose of Boardmembership and membership on the Board’s standing committees that would be applicable if the Company were to list its shares on the NASDAQ StockMarket. Based on that evaluation, our Board has concluded that (i) eight of the thirteen members of the Board are independent: Messrs. Brakke, Briggs,Criste, Fix, Larsen, Rosenberg, Sonenshine and Tchen, and (ii) all of the members of the Audit Committee, Compensation Committee and NominatingCommittee are independent. 117Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsItem 14. Principal Accounting Fees and ServicesAudit and Non-Audit Services Pre-Approval PolicyThe Audit Committee’s Charter provides that the Audit Committee must pre-approve services to be performed by the Company’s independentregistered public accounting firm. In accordance with that requirement, the Audit Committee pre-approved the engagement of Vavrinek, Trine Day and Co.LLP, (“VTD”) pursuant to which it provided the services described below for the fiscal years ended December 31, 2013 and 2012.Audit and Other Fees Paid in Fiscal Year 2013 and 2012Aggregate fees for professional services rendered to the Company by VTD were as follows for the years ended December 31: 2013 2012 Audit services $83,000 $61,000 Audit related services - - Tax compliance services - - All other services - - Total $83,000 $61,000 Audit ServicesIn each of the years ended December 31, 2013 and 2012, VTD rendered audit services which consisted of the audit of the Company’sconsolidated financial statements for the years then ended.Audit Related ServicesVTD did not render any other audit related services to us during 2013 or 2012.Tax Compliance ServicesVTD did not render any tax compliance services to us during 2013 or 2012.Other ServicesVTD did not render any other professional or any consulting services to us during 2013 or 2012. 118Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPART IVItem 15. Exhibits and Financial Statement Schedules. (a)Financial Statements, Financial Statement SchedulesSee page 64 for an index of the financial statements filed as part of this Annual Report on Form 10-K. No financial statement schedules areprovided because the information called for is not required or is shown either in the financial statements or the notes thereto. (b)ExhibitsSee the Index of Exhibits on page E-1 for a list of exhibits filed as part of this Annual Report on Form 10-K, which Index of Exhibits isincorporated herein by reference. 119Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized. FIRST FOUNDATION INC.By: /S/ SCOTT F. KAVANAUGH Scott F. Kavanaugh, President andChief Executive OfficerPOWER OF ATTORNEYEach individual whose signature appears below constitutes and appoints Scott F. Kavanaugh, Ulrich E. Keller, Jr. and John M. Michel, and eachof them, acting severally, his or her true and lawful attorneys-in-fact and agents with full power of substitution, for him or her and in his or her name, placeand stead, in any and all capacities, to sign and file on his or her behalf and in each capacity stated below, all amendments and/or supplements to this AnnualReport on Form 10-K, which amendments or supplements may make changes and additions to this Report as such attorneys-in-fact, or any of them, actingseverally, may deem necessary or appropriate.Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed below by the following personsin the capacities and on the dates indicated. SIGNATURE TITLE DATE/s/ SCOTT F. KAVANAUGHScott F. Kavanaugh Chief Executive Officer and Director(Principal Executive Officer) March 25, 2014/s/ JOHN M. MICHELJohn M. Michel Chief Financial Officer(Principal Financial and Accounting Officer) March 25, 2014/s/ ULRICH E. KELLER, JR.Ulrich E. Keller, Jr. Chairman and Director March 25, 2014/s/ JAMES BRAKKEJames Brakke Director March 25, 2014/s/ MAX BRIGGSMax Briggs Director March 25, 2014/s/ VICTORIA COLLINSVictoria Collins Director March 25, 2014/s/ MICHAEL A. CRISTEMichael A. Criste Director March 25, 2014/s/ WARREN D. FIXWarren D. Fix Director March 25, 2014/s/ DOUGLAS K. FREEMANDouglas K. Freeman Director March 25, 2014 S-1Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsSIGNATURE TITLE DATE/s/ JOHN HAKOPIANJohn Hakopian Director March 25, 2014/s/ GERALD L. LARSENGerald L. Larsen Director March 25, 2014/s/ MITCHELL M. ROSENBERGMitchell M. Rosenberg Director March 25, 2014/s/ JACOB SONENSHINEJacob Sonenshine Director March 25, 2014/s/ HENRI TCHENHenri Tchen Director March 25, 2014 S-2Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsINDEX OF EXHIBITS Exhibit No. Description 3.1† Articles of Incorporation of First Foundation Inc., as amended, as filed with the Secretary of State of California and as currently in effect. 3.2† Amended and Restated Bylaws of First Foundation Inc., as currently in effect. 4.1† Specimen Certificate for Common Stock.10.1† # First Foundation Inc. 2007 Equity Incentive Plan.10.2† # First Foundation Inc. 2007 Management Stock Incentive Plan.10.3† Form of Director and Officer Indemnification Agreement.10.4† # Amended and Restated Employment Agreement, dated December 31, 2009, by and between First Foundation Inc., First Foundation Advisorsand Ulrich E. Keller, Jr., together with First and Second Amendments thereto.10.5† # Amended and Restated Employment Agreement, dated December 31, 2009, by and between First Foundation Inc., First Foundation Bank andScott F. Kavanaugh, together with First and Second Amendments thereto.10.6† # Amended and Restated Employment Agreement, dated December 31, 2009, by and between First Foundation Advisors and John Hakopian,together with First and Second Amendments thereto.10.7† # Change of Control Agreement, dated September 17, 2007, by and between First Foundation Inc. and Ulrich E. Keller, Jr.10.8† # Change of Control Agreement, dated September 17, 2007, by and between First Foundation Inc. and Scott F. Kavanaugh.10.9† # Change of Control Agreement, dated September 17, 2007, by and between First Foundation Inc. and John Hakopian.10.10† Agreement and Plan of Merger, as amended, by and among First Foundation Inc., First Foundation Bank and Desert Commercial Bank, datedJune 29, 2011, together with First, Second and Third Amendments thereto.10.11† Earn-Out Agreement, dated August 15, 2012, entered into pursuant to the Agreement and Plan of Merger with Desert Commercial Bank, byand between First Foundation Inc. and Desert Commercial Bank.10.12† Loan Agreement, dated April 19, 2013, by and between First Foundation Bank, as borrower, and NexBank SSB, as lender, together with FirstFoundation Inc.’s Promissory Note and a Security Agreement entered into by First Foundation Inc. pursuant to the Loan Agreement.10.13 # Amended and Restated Employment Agreement, dated December 31, 2009, by and between First Foundation Bank and Dave Rahn, togetherwith First and Second Amendments thereto.10.14 # Amended and Restated Employment Agreement, dated December 31, 2009, by and between First Foundation Inc., First Foundation Bank, FirstFoundation Advisors and John Michel, together with First and Second Amendments thereto.10.15 # Change of Control Agreement, dated September 17, 2007, by and between First Foundation Inc. and Dave Rahn.10.16 # Change of Control Agreement, dated September 17, 2007, by and between First Foundation Inc. and John Michel.14.1 Code of Conduct for the Chief Executive Officer and Other Senior Financial Officers21.1 Subsidiaries of the Registrant23.1 Consent of Vavrinek, Trine, Day & Co., independent registered public accounting firm24.1 Power of Attorney — Included on Signature Page.31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 †Incorporated by reference to the same numbered Exhibit to the Company’s Registration Statement on Form 10 filed with the Commission onOctober 17, 2013.#Management contract or compensatory plan. E-1Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.13EMPLOYMENT AGREEMENTThis EMPLOYMENT AGREEMENT (the “Agreement”) amends and restates the Employment Agreement made as ofSeptember 17, 2007, by and between First Foundation Bank, a federal savings bank (the “Employer”), and Dave O. Rahn (the“Executive”). The effective date of this amended and restated Agreement is December 31, 2009 (the “Effective Date”).WHEREAS, Employer is a federal savings bank chartered by the Office of Thrift Supervision (the “OTS”),and conducts abanking business as a wholly-owned subsidiary of First Foundation Inc. (“Parent”), which, through its subsidiaries (collectively“Affiliates”), provides commercial banking, investment management, wealth management, advisory services, trust services and otherfinancial services to the public.WHEREAS, Employer desires to employ Executive, and Executive desires to be employed by Employer, in accordance withthe terms and subject to the conditions hereof.NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the Employer and the Executiveagree as follows:1. Employment. Employer agrees to employ Executive and Executive agrees to be employed by Employer, on a full timebasis, on the terms and conditions set forth in this Agreement.2. Capacity. The Executive shall serve the Employer as its President and Chief Operating Officer. The Executive shall beprincipally responsible for depository strategies, relationship management, client development, regulatory compliance, trust operations,subject to the directions of the Employer’s Board of Directors (the “Board”) or Chief Executive Officer (the “CEO”). Executive shallalso serve Employer in such other or additional offices and capacities as the Executive may be requested to serve by the Board or theCEO and shall perform such services and duties in connection with the business, affairs and operations of, Employer as may beassigned or delegated from time to time to Executive, when rendering services in such other or additional capacities, by or under theauthority of the Board or the CEO.3. Extent of Service. During Executive’s employment under this Agreement, Executive shall devote Executive’s fullbusiness time, best efforts and business judgment, skill and knowledge to the advancement of Employer’s business and interests and tothe discharge of Executive’s duties and responsibilities under this Agreement. Executive shall not engage in any other business activity,except as may be approved in writing and in advance by the Board; provided, however, that nothing in this agreement shall beconstrued as preventing Executive from:(a) investing Executive’s assets in any company or other entity in a manner not prohibited by Section 8(d) hereofand in such form or manner as shall not require any material activities on Executive’s part in connection with the operations or affairs ofthe companies or other entities in which such investments are made; or(b) engaging in religious, charitable or other community or non-profit activities that do not impair Executive’sability to fulfill his/her duties and responsibilities under this Agreement.4. Term. Unless sooner terminated pursuant to Section 6 hereof, the original term of Executive’s employment withEmployer pursuant to this Agreement was to be a period of three (3) consecutive years (the “Term”), commencing on September 17,2007 (the “Employment Commencement Date”) and ending on September 17, 2010. The expiration date of the Term of the Agreementis hereby extended to December 31, 2012. 1Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.5. Compensation and Benefits. The regular compensation and benefits payable to Executive under this Agreement shall beas follows:(a) Salary. For all services rendered by Executive under this Agreement, Employer shall pay Executive a salary atthe annual rate of One Hundred Ninety Five Thousand dollars ($195,000), as the same may be increased in the sole discretion of theBoard or its Compensation Committee (the “Compensation Committee”), at any time or from time to time hereafter (the “Base AnnualSalary”). Executive’s Base Annual Salary shall be payable in periodic installments in accordance with Employer’s usual payrollpractices for its senior executives.(b) Bonus Compensation. Executive shall be entitled to participate in the annual incentive bonus programs forEmployer’s senior executives; provided, however, that nothing contained in this Section 5(b) or elsewhere in this Agreement shall beconstrued to create any obligation on the part of Employer to maintain the effectiveness of any annual incentive bonus program. Theperformance measures and goals that will be used to determine Executive’s entitlement to an annual incentive bonus under any suchbonus program that is established by Employer shall be determined by the Board or the Compensation Committee.(c) Regular Employee Benefits. Executive shall be entitled to participate in any qualified or any other retirementplans, stock option and equity incentive plans, stock purchase plans, medical insurance plans, life insurance plans, disability insuranceor income plans, vacation plans, expense reimbursement plans and other benefit plans which Employer may from time to time have ineffect for all or most of its senior executives; provided, however, that nothing contained in this Section 5(c) or elsewhere in thisAgreement shall be construed to create any obligation on the part of Employer to establish any such plan or to maintain theeffectiveness of any such plan which may be in effect from time to time during the Term. The extent and the terms and conditions ofExecutive’s participation in any such plan shall be subject to the terms and conditions in the applicable plan documents, generallyapplicable policies of the Employer, applicable law and the discretion of the Board, the Compensation Committee or any administrativeor other committee provided for in or contemplated by any such plan.(d) Reimbursement of Business Expenses. Employer shall reimburse Executive for all reasonable expenses incurredby him/her in performing services pursuant to this Agreement, in accordance with Employer’s expense reimbursement policies andprocedures for its senior executives, as in effect from time to time.(e) Taxation of Compensation Payments and Benefits. Employer shall be entitled and shall undertake to makedeductions, withholdings and tax reports with respect to compensation payments and benefits to Executive under this Agreement to theextent that Employer reasonably and in good faith believes that it is required to make such deductions, withholdings and tax reports.Payments under this Agreement shall be in amounts net of any such deductions or withholdings. Nothing in this Agreement shall beconstrued to require Employer to make any payments to compensate Executive for any adverse tax consequences associated with orarising out of any payments or benefits or for any deduction or withholding from any payments or benefits.(f) Exclusivity of Salary and Benefits. Except as otherwise set forth in Exhibit A hereto, Executive shall not beentitled to any payments or benefits other than those expressly provided for in this Agreement. 2Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.6. Termination of Employment. Notwithstanding the provisions of Section 4, Executive’s employment under thisAgreement shall terminate prior to the end of the Term under the following circumstances and in accordance with the terms andprovisions set forth below in this Section 6.(a) Termination by Employer for Cause. Executive’s employment under this Agreement may be terminated forCause, without further liability on the part of Employer, effective immediately upon a vote of the Board and written notice to theExecutive. Each of the following shall constitute “Cause” that shall entitle Employer to terminate Executive’s employment for Cause:(i) any act of gross negligence, willful misconduct or insubordination by Executive with respect toEmployer or any of its Affiliates, or any act of fraud, whether or not involving Employer or any Affiliate of Employer; or(ii) a violation by Executive of any laws or government regulations applicable to Employer whichcould reasonably be expected to subject Employer or any of its Affiliates (including any of their respective officer ordirectors) to disciplinary or enforcement action by any governmental agency, including the assessment of civil moneydamages on Employer, or which could reasonably be expected to adversely affect Employer’s or any of its Affiliatesreputation or goodwill with clients, customers, regulatory agencies or suppliers doing business with the Employer or any ofits Affiliates; or(iii) the issuance of an order under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (the“FDIA”) requiring Executive to be removed or permanently prohibited from participating in the conduct of the Employer’sbusiness; or(iv) the commission by Executive of an act which would constitute (A) a felony or (B) anymisdemeanor involving moral turpitude, deceit, dishonesty or fraud; or(v) any failure of Executive to perform, to the reasonable satisfaction of the Board, a substantialportion of Executive’s duties and responsibilities assigned or delegated to him/her under this Agreement, which failurecontinues, in the judgment of the Board, for more than thirty (30) days following the giving of written notice to Executive ofsuch failure; or(vi) a breach by Executive of any of Executive’s material obligations under this Agreement, whichbreach remains uncured within fifteen (15) days following Executive’s receipt of written notice of the existence of suchbreach and, for such purposes, the term “material obligations” shall include each of Executive’s covenants and obligationscontained in Section 8 hereof; or(vii) a violation by Executive of any conflict of interest policy, ethical conduct policy or employmentpolicy adopted by Employer or Parent or a breach by Executive of any of his/her fiduciary duties to Employer or Parent; or(viii) the issuance of an order or directive by any government agency having jurisdiction over Employeror any of its Affiliates or over Executive which requires Executive to disassociate himself/herself from Employer or any of itsAffiliates, suspends Executive’s employment or requires Employer to terminate Executive’s employment; or(b) Termination by Employer Without Cause. Executive’s employment under this Agreement may be terminated byEmployer without Cause upon written notice to Executive, whereupon Executive shall become entitled to the severance compensationand benefits set forth in Section 7(b) of this Agreement. Notwithstanding anything to the contrary that may be contained in thisAgreement, it is acknowledged and agreed that a termination pursuant to any of Sections 6(d) (entitled “Termination due to Death”),6(e) (entitled “Disability”) or 6(f) (entitled “Expiration of Term”) below, shall not be deemed to be or constitute a termination withoutCause for purposes of this Agreement.” 3Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(c) Termination by Executive for Good Reason. Subject to the terms and conditions set forth hereinafter in thisSection 6(c), Executive shall be entitled to terminate this Agreement and his/her employment with Employer hereunder for “GoodReason” and to receive the severance compensation set forth in Section 7(b) below, if Employer takes any of the actions set forth inclauses (i) through (iv) below (each a “Good Reason Action”):(i) Reduction or Adverse Change of Authority and Responsibilities. Employer materially reducesExecutive’s authority, duties or responsibilities with Employer, unless such reduction is made as a consequence of (i) anyacts or omissions of Executive which would entitle Employer to terminate Executive’s employment for Cause (as defined inSection 6(a) of this Agreement), or (ii) Executive’s Disability (determined as provided in Section 6(e) of this Agreement);(ii) Material Reduction in Salary. Employer materially reduces Executive’s base salary or basecompensation below the amount thereof as prescribed by Executive’s Employment Agreement, unless such reduction ismade (A) as part of an across-the-board cost-cutting measure that is applied equally or proportionately to all seniorexecutives of Employer, rather than discriminatorily against Executive, or (B) as a result of any acts or omissions ofExecutive which would entitle Employer to terminate Executive’s employment for Cause (as defined in Section 6(a) of thisAgreement), or (C) by and at the election of the Employer as a result of Executive’s Disability (determined as provided inSection 6(e) of this Agreement);(iii) Relocation. Employer relocates Executive’s principal place of employment to an office (other thanEmployer’s headquarters offices) located more than thirty (30) miles from Executive’s then principal place of employment(other than for temporary assignments or required travel in connection with the performance by Executive of his/her dutiesfor Employer); or(iv) Breach of Material Employment Obligations. Employer commits a breach of any of its materialobligations to Executive under this Agreement which breach continues uncured for a period of thirty (30) days followingwritten notice thereof from Executive.Notwithstanding anything to the contrary that may be contained in this Section 6(c) or elsewhere in this Agreement: (x) thefollowing conditions must be satisfied in order for Executive to terminate this Agreement and his/her employment for Good Reason:(1) Executive shall have given Employer a written notice of termination for Good Reason (a “Good Reason Termination Notice”) priorto the expiration of a period of fifteen (15) consecutive calendar days commencing on the date that Executive is first notified in writingthat Employer has taken any such Good Reason Action, (2) Employer shall have failed to rescind or cure such Good Reason Actionwithin thirty (30) consecutive calendar days following its receipt of such Good Reason Termination Notice, and (3) the Good ReasonTermination Notice must expressly state that Executive is terminating his/her employment for Good Reason pursuant to this Section 6(c)and must describe in reasonable detail the Good Reason Action that entitles Executive to terminate this Agreement and his/heremployment for Good Reason; and (y) Executive shall not be entitled to terminate his/her employment for Good Reason, if Executiveshall have consented to the taking of such Good Reason Action by Employer or if Employer was required to take any of the above-described actions in order to comply with any applicable laws or government regulations or any order, ruling, instruction ordetermination of any court or other tribunal or any government agency having jurisdiction over Employer or any of its Affiliates.”(d) Termination due to Death. Executive’s employment with Employer shall terminate upon his/her death. 4Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(e) Disability. If Executive shall become disabled so as to be unable to perform the essential functions ofExecutive’s then existing position or positions with Employer or with any of Employer’s Affiliates under this Agreement, then, upon theexpiration of the lesser of (i) six (6) months thereafter or (ii) the then remainder of the Term of this Agreement (the “Interim DisabilityPeriod”), Executive’s employment may be terminated by Employer without liability to Executive, subject to the following terms andprovisions. The Board may remove Executive from any responsibilities and/or reassign Executive to another position with Employer forand the during the Interim Disability Period, provided, however, that Executive shall continue to receive his/her full Base Annual Salary(less any disability pay or sick pay benefits to which the Executive may be entitled under the Employer’s policies or benefit programs),together with benefits Executive receives pursuant to Section 5 hereof (except to the extent that Executive may be ineligible for one ormore such benefits under applicable plan terms), for and during the Interim Disability Period. If any question shall arise as to whetherExecutive is disabled so as to be unable to perform the essential functions of Executive’s then existing position or positions, with orwithout reasonable accommodation, Executive may, and at the request of Employer shall, submit to Employer a physician’scertification (in reasonable detail) as to whether Executive is so disabled and how long such disability is expected to continue. Suchcertification shall be obtained only from a physician who is selected by Employer and to whom Executive or Executive’s guardian (asthe case may be) has no reasonable objection and the certification so obtained shall for purposes of this Agreement be conclusive ofsuch question or any issue as to the matters addressed in such certification. Executive shall cooperate with any reasonable request ofthat physician in connection with such certification, including a request that Executive undergo any physical or mental examination ortests, as deemed appropriate by such physician. If Executive shall fail to submit to such an examination or any such tests, as suchphysician deems in his/her discretion to be appropriate for purposes of enabling physician to make such certification, then, Employer’sdeterminations with respect to the questions of whether Executive is disabled and how long such disability is expected to continue shallbe binding on Executive. Nothing in this Section 6(d) shall be construed to waive the Executive’s rights, if any, under existing lawincluding, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. §2601 et seq. and the Americans with DisabilitiesAct, 42 U.S.C. §12101 et seq.(f) Terminations due to Certain Regulatory Actions Affecting Employer. Notwithstanding anything to the contrarythat may be contained elsewhere in this agreement, this Agreement, and Executive’s employment hereunder shall terminate, on theoccurrence of any of the following events:(i) A conservator, receiver, or other legal custodian is appointed for the Employer pursuant to anyadjudication or other official determination by any court of competent jurisdiction, the OTS, or any governmental authorityhaving jurisdiction over Employer; or(ii) the Director of the OTS, or his or her designee, requires this Agreement to be terminated due to(A) the entry, by the Federal Deposit Insurance Corporation (the “FDIC”) into an agreement to provide assistance to or nbehalf of the Employer under the authority contained in 13(c) of the FDIA; or (B) the approval of a supervisory merger toresolve problems related to operations of the Employer or (C) a determination by Director of the OTS that the Employer is inan unsafe or unsound condition.(g) Expiration of Term. Executive’s employment under this Agreement shall terminate automatically on and as ofthe expiration date of the Term (whether that is at the end of the Original Term or any Renewal Period), unless the parties shall haveexecuted a written agreement of renewal as contemplated in Section 4 hereof. 5Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(h) Survival. Upon expiration or any termination of Executive’s employment with Employer pursuant to any of theprovisions of this Section 6, this Agreement also shall terminate; provided, however, that the following shall survive and remain in fullforce and effect after the expiration or any termination of this Agreement: (i) the respective representations and warranties of each partycontained in this Agreement, which shall continue in effect throughout the Term, and (ii) the respective rights, obligations andcovenants and agreements of the parties contained in Sections 7 (entitled “Compensation Upon Termination”), Section 8 (entitled“Protective Covenants”), Section 9 (entitled “Arbitration of Disputes”) and Section 10 (entitled “Miscellaneous”) hereof.(i) Suspension of Employment. If Executive is suspended and/or temporarily prohibited from participating in theconduct of the Employer’s business by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (a “Suspension Notice”), theEmployer’s obligations under the Agreement shall be suspended as of the date on which service of such Suspension Notice is made,unless such suspension is stayed by appropriate proceedings. If the charges in the Suspension Notice are dismissed, Employer may, inits discretion (i) pay the Executive all or part of the compensation withheld while Employer’s obligations hereunder were suspended,and (ii) reinstate (in whole or in part) any of the obligations of Employer that were suspended.7. Compensation Upon Termination.(a) Termination Generally. If Executive’s employment with Employer expires or is terminated (whether byEmployer or Executive) for any reason during the Term, Employer shall pay or provide to Executive (or to his/her authorizedrepresentative or estate): (i) any unpaid Base Annual Salary earned through the date of such termination; (ii) any unpaid incentivecompensation that is deemed earned and has become payable under the terms of any incentive compensation program in whichExecutive was participating at the time of or had participated prior to such expiration or termination of employment; (iii) unpaidexpense reimbursements; (iv) accrued but unused vacation, and (v) any vested benefits Executive may have earned under anyemployee benefit plan of Employer or Parent prior to the expiration or termination of Executive’s employment; provided, however, thatnotwithstanding the foregoing provisions of this Section 7(a), if Executive’s employment is terminated for Cause pursuant toSection 6(a) above or pursuant to Section 6(f), due to certain Regulatory Actions, then, unless otherwise required by applicable law,Executive shall not be entitled to receive any unpaid incentive compensation that might otherwise have been due to Executive.(b) Termination by the Employer Without Cause or by Executive for Good Reason. In the event of a termination ofExecutive’s employment by Employer without Cause pursuant to Section 6(b) above, or by Executive for Good Reason pursuant toSection 6(c) above, then subject to Executive’s execution and delivery of an agreement, that is satisfactory in a form and substance toEmployer, releasing any and all legal claims (known or unknown) Executive may have against Employer or any or its Affiliates,Employer shall provide to Executive the following termination benefits (“Termination Benefits”):(i) A severance payment (the “Severance Payment”) in an amount equal to (x) twelve (12) months ofExecutive’s Base Annual Salary or (y) the aggregate Base Annual Salary that would have been paid to Executive for theremainder of the Term of the Agreement if such remaining Term is shorter than the aforementioned 12 month period, as thecase may be (the “Termination Benefits Period”); and(ii) continuation during the Termination Benefits Period of group health plan benefits to the extentauthorized by and consistent with 29 U.S.C. § 1161 et seq. (commonly known as “COBRA”), subject to payment ofpremiums by Executive at the active employee’s rate (the Health Insurance Cost Sharing Benefit”). 6Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Notwithstanding the foregoing provisions of this Section 7(b) or any other provision of this Agreement to the contrary, (A) theSeverance Payment and the Health Insurance Cost Sharing Benefit that would otherwise be payable to Executive pursuant to thisSection 7(b) shall be reduced by the amount of any severance compensation or health insurance benefits that are due or are otherwisepaid to Executive under any separate severance compensation or change in control or similar agreement between Executive, on the onehand, and Employer or Employer’s Parent, on the other hand, or any severance pay or stay bonus plan of Employer or Parent(irrespective of when such agreement is entered into or such plan becomes effective); (B) if Executive commences any employmentwith another employer during the Termination Benefits Period and that other employer offers group health plan or health insurancebenefits reasonably comparable to those available from Employer, then, the Health Insurance Cost Sharing Benefit provided underparagraph 7(b)(ii) above shall cease to be payable as of the date of commencement of such employment; and (C) nothing in thisSection 7(b) shall be construed to affect Executive’s right to receive COBRA continuation entirely at Executive’s own cost to the extentthat Executive may continue to be entitled to COBRA continuation after the Executive’s Health Insurance Cost Sharing Benefit underthis Section 7(b)(ii) ceases. Executive shall be obligated to give prompt notice of the date of commencement of any employment duringthe Termination Benefits Period and shall respond promptly to any reasonable inquiries concerning any employment in whichExecutive may be engaged during the Termination Benefits Period. The Termination Benefits shall be paid by Employer in installmentsin accordance with the customary payroll practices of Employer (net of required deductions and withholdings).(c) Termination Upon Death. In the event of a termination of Executive’s employment due to death, Employer shallpay to Executive’s estate an amount equal to one hundred percent (100%) of Executive’s Base Annual Salary at the rate in effectimmediately prior to such termination (the “Death Benefit”), less the amount of any life insurance benefits which Executive’s estate orany of Executive’s beneficiaries receive under any Employer-provided life insurance plan or program in which Executive wasparticipating at the time of his/her death. Any Death Benefit payable pursuant to this Section 7(c) shall be paid in a lump sum payment(net of any tax and any other required withholdings) to the beneficiary designated in writing by Executive, or if no beneficiary wasdesignated, to his/her estate, as soon as is practicable following Executive’s death.(d) Exclusivity of Termination Benefits. Except as may otherwise be set forth in Exhibit A hereto, Executive shallnot be entitled to any payments or benefits due to the expiration or termination of Executive’s employment with Employer other thanthose benefits that are expressly provided for in this Section 7. Without limiting the generality of the foregoing, the TerminationBenefits set forth in Section 7(b), together with any severance benefits that Executive may be entitled to receive under any separateseverance compensation or change of control or stay-pay agreement to which executive may be a party or any separate severance orstay pay plan in which Executive may be a participant, shall constitute the exclusive rights and remedies against Employer and itsAffiliates to which Executive shall be entitled by reason of termination or Executive’s employment by Employer without Cause or byExecutive for Good Reason or for any damages arising therefrom.8. Protective Covenants.(a) Certain Definitions.(i) Confidential Information. As used in this Agreement, “Confidential Information” means informationbelonging to Employer or any of its Affiliates which is of value to Employer or any such Affiliates in the course ofconducting any of their respective businesses and the disclosure of which could result in a competitive or other disadvantageto Employer or any such Affiliates. Confidential Information includes, without limitation, financial information, includingfinancial statements and projections, business and expansion or growth plans, reports, and forecasts; inventions,improvements and other intellectual property; trade secrets; know-how; designs, processes or formulae; software; market orsales information or plans; customer lists and 7Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.information regarding, or supplied to Employer or any of its Affiliates by, any of their respective existing or prospectivecustomers; supplier lists and information about, or provided to Employer or any of its Affiliates by, any of their respectivesuppliers, vendors or consultants; information regarding the capabilities, duties or compensation of employees of Employeror of any its Affiliates; and information regarding the business prospects and opportunities of Employer or any of itsAffiliates (such as possible acquisitions or dispositions of businesses or facilities). Confidential Information also includesinformation developed by Executive in the course of Executive’s employment by Employer, as well as other information towhich the Executive may have access in connection with Executive’s employment, and the confidential information ofothers with which Employer has a business relationship. Notwithstanding the foregoing, Confidential Information does notinclude information in the public domain, unless such information entered the public domain as a result of a breach of any ofExecutive’s covenants under Section 8(b). Executive acknowledges and agrees that Employer has a legitimate businessinterest in protecting the Confidential Information.(ii) Competing Business. For purposes of this Agreement, the term “Competing Business” shall mean abusiness conducted anywhere within [the counties of Orange, San Diego, Los Angeles, San Bernardino and Riverside, in thestate of California] which is located within forty (40) miles of any office or facility used by Employer or any of its Affiliateswhich is competitive with any business which Employer or any of its Affiliates conducts or proposes to conduct at any timeduring Executive’s employment with Employer or any of its Affiliates, including, without limitation, the commercial bankingbusiness and the investment advisory services business.(b) Confidentiality.(i) Executive understands and agrees that Executive’s employment creates a relationship of confidenceand trust between Executive and Employer, including with respect to all Confidential Information, whether such ConfidentialInformation exists on the Employment Commencement Date or is created, developed or acquired or comes into being at anytime during the term of this Agreement. Executive covenants and agrees that, at all times (both during Executive’semployment with Employer and after its expiration or termination for any reason), Executive will keep all ConfidentialInformation in strict confidence and trust and will not disclose any of the Confidential Information to any Person, andExecutive covenants and agrees that he will not use any of the Confidential Information for Executive’s benefit or the benefitof any Person other than Employer and Parent and their Affiliates.(ii) In the event that Executive is requested or required (including by means of deposition,interrogatories, requests for information or documents in legal proceedings, subpoena, civil investigative demand or othersimilar process or by a tribunal, court or regulatory agency, (including, but not limited to, the Office Thrift Supervision(“OTS”) and the Federal Deposit Insurance Corporation (the “FDIC”)) having applicable jurisdiction, to disclose any of theConfidential Information, Executive shall, unless prohibited by law or regulation, provide Employer with prompt writtennotice of any such request or requirement so that Employer may seek a protective order or other appropriate remedy and/orwaive compliance with the provisions of this Section 8(b) with respect to such requested or required ConfidentialInformation. If, in the absence of a protective order or other remedy acceptable to Employer or the receipt of a waiver fromEmployer, Executive is nonetheless legally required to disclose such Confidential Information to any tribunal, court orgovernment agency to avoid being held liable for contempt or suffering other censure or penalty, Executive may, withoutthereby violating this Section 8(b) or incurring any liability to Employer hereunder, disclose 8Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.only that portion of the Confidential Information that Executive is legally required to disclose. In any case, Executive shallcooperate with Employer in any efforts it may undertake to preserve the confidentiality of such Confidential Information,including, without limitation, by cooperating with Employer’s efforts to obtain an appropriate protective order or otherreliable assurance that confidential treatment will be accorded the Confidential Information.”(c) Documents, Records, etc. All documents, records, data, apparatus, equipment and other physical property,including cell phones and computers, and whether or not pertaining to Confidential Information, which are furnished to Executive byEmployer or which are produced by Executive in connection with Executive’s employment, will be and remain the sole property ofEmployer. Executive will return to Employer all such materials and property as and when requested by Employer or if no requesttherefor has theretofore been made, then, immediately upon the expiration or termination of Executive’s employment with Employer forany reason whatsoever. Executive covenants and agrees that he/she will not retain any such materials or property or any copies thereofafter any such expiration or termination of his/her employment with Employer.(d) Noncompetition Covenant. During the Term of this Agreement, Executive will not, directly or indirectly,whether as owner, partner, shareholder, consultant, agent, employee, co-venturer, lender or creditor or otherwise, engage, participate,assist, support or invest in any Competing Business.(e) Non-Solicitation Covenant. Executive covenants and agrees that, during the Term and for a period equal toeighteen (18) months thereafter, he shall not, either on behalf of himself or any other Person, directly or indirectly, solicit or attempt toemploy or hire or recruit or hire any Person who is, or during the prior twelve (12) months had been, an employee of Employer, itsParent or any of their Affiliates or induce or influence any such employee to leave the employ of Employer, Parent or any of theirrespective Affiliates.(f) Non-Interference Covenant. Executive acknowledges that in connection with and in the course of his/heremployment with Employer, Executive will have access to trade secrets and other Confidential Information of Employer, Parent andtheir respective Affiliates, which Confidential Information may include, without limitation, the identities of and information about thebanking and other financial service needs and the investment goals and plans of clients and customers of Employer, Parent or any oftheir respective its Affiliates. As a result of his/her employment with Employer, Executive also will be given, by Employer, Parent ortheir Affiliates, the opportunity, resources and Confidential Information which Executive will need to establish business relationshipswith existing and prospective clients and customers of Employer, Parent, or their Affiliates, all for the exclusive benefit of Employerand Parent or their respective Affiliates. Accordingly, Executive covenants and agrees that during the Term of his/her employment withEmployer and for a period of eighteen (18) months following the termination, for any reason whatsoever, of his/her employment withEmployer (including any voluntary termination or any termination for Good Reason by Executive or any termination by Employer withor without Cause), Executive shall not use any information that constitutes a trade secret or Confidential Information of Employer,Parent or any of their Affiliates to directly or indirectly, personally or through others, (i) solicit for or on behalf of any Person competingagainst Employer or its Affiliates, any existing or prospective client or customer of Employer, Parent or any of their Affiliates, or(ii) encourage or induce any client, customer, supplier or vendor of or service provider to Employer, Parent or any of their Affiliates toterminate or modify (in a manner adverse to any of them) the business relationship that any such client, customer, supplier, vendor orservice provider has with any of them.(g) Exception for Ownership of Shares in Public Companies. Notwithstanding the foregoing covenants, Executivemay own up to five percent (5%) of the outstanding capital stock of a publicly traded corporation which constitutes or is affiliated witha Competing Business, provided that 9Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Executive is a passive investor in that corporation and does not provide any assistance or support of any kind, financial or other (otherthan his/her ownership of such capital stock) to or serve in any capacity with, such corporation or any of its Affiliates.(h) Certain Acknowledgements. Executive (i) understands, acknowledges and agrees that each of the covenants andrestrictions set forth, respectively, in Subsections 8(b) through 8(f) above are intended to protect the interests of Employer, its Parentand their respective Affiliates in their trade secrets and other Confidential Information and established client, customer, supplier,vendor, employee and consultant relationships and the goodwill established by Employer, Parent or such Affiliates with or among theirrespective clients, customers, suppliers, vendors, employees and consultants, (ii) acknowledges and agrees that this Section 8 imposesno greater restraint or restriction on Executive than is reasonably necessary to protect the legitimate business interests of Employer,Parent and their Affiliates, and such restrictions are reasonable and appropriate for this purpose and will not adversely affectExecutive’s ability, following a termination of his/her employment with Employer, to earn a livelihood from his/her chosen profession,and (iii) acknowledges that the consideration received by him pursuant to this Agreement is good, valuable and adequate considerationin exchange for his/her covenants and agreements contained in this Section 8.(i) Severability. If any of the definitions contained in Section 8(a) or any of the covenants or agreements ofExecutive contained in Subsections 8(b), 8(c), 8(d), 8(e), or 8(f) above or in Subsections 8(j) or 8(k) below (collectively, the “ProtectiveCovenants”) is held by any court of competent jurisdiction to be unenforceable or unreasonable as to time, geographic coverage, orbusiness limitation, Executive and Employer agree that in any such instance that particular definition or that particular ProtectiveCovenant, as the case may be (the “Offending Provision”) shall be reformed to the maximum time, geographic area or businesslimitation (as the case may be) that will permit it to be enforced under applicable law. The parties further agree that, in any such event,all of the remaining definitions and Protective Covenants shall be severable, shall remain in full force and effect and shall beenforceable independently of each other and a holding by a court of competent jurisdiction that any definition or Protective Covenant isunenforceable or unreasonable to any extent shall not affect or impair the continued validity or enforceability of the other definitions orProtective Covenants contained in this Section 8(j) Third Party Agreements and Rights. Executive hereby represents and warrants that he is not bound by the termsof any contract or other agreement (written or oral) with any previous employer or other Person which restricts in any way Executive’suse or disclosure of information or Executive’s engagement in any business. Executive further represents and warrants to Employer thatExecutive’s execution and delivery of this Agreement, Executive’s employment with Employer and the performance of Executive’sduties for Employer pursuant to this Agreement will not violate any obligations, contractual or other, that Executive may have to anysuch previous employer or other Person. In Executive’s work for Employer, Executive will not disclose or make use of any informationin violation of any contracts or other agreements (written or oral) with or the rights of any such previous employer or other Person, andExecutive will not bring to the premises of Employer any copies or other tangible embodiments of non public information belonging toor obtained from any such previous employer or other Person.(k) Litigation and Regulatory Cooperation. During and after the Term of this Agreement, Executive shall cooperatefully with Employer, Parent and their Affiliates in the prosecution or defense of any claims or actions or other proceedings which hasbeen or may be brought on behalf of or against Employer, Parent or any of their Affiliates which relate to events or occurrences thattranspired while Executive was employed by Employer. Executive’s full cooperation in connection with such claims or actions shallinclude, but shall not be limited to, being available to meet with counsel to 10Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.prepare for discovery or trial and to act as a witness on behalf of Employer, Parent or any of their Affiliates at mutually convenienttimes. During and after the Term of this Agreement, Executive also shall cooperate fully with Employer, Parent and their Affiliates inconnection with any examination, investigation or review by any federal, state or local regulatory authority which covers any period, orrelates to events or occurrences that transpired, while Executive was employed by Employer. Executive acknowledges that theperformance by him of the covenants and duties set forth in this Section 8(k) during the term of this Agreement are part of his/her dutiesunder this Agreement and that he shall not be entitled to any compensation therefor that is separate from or in addition to his/hercompensation under this Agreement. If Executive performs any of the duties as required by this Section 8(k) after the Term of thisAgreement, as Executive’s compensation therefor, Employer shall reimburse Executive for any reasonable out-of-pocket expensesincurred in connection with the performance by Executive of his/her duties under this Section 8(k).(l) Equitable Remedies. Executive acknowledges and agrees that it would be difficult to measure the damages thatEmployer will sustain as a result of any breach by Executive of any of the Protective Covenants or any of the other agreements ofExecutive contained in this Section 8 and that monetary damages, in and of themselves, would not be an adequate remedy for any suchbreach. Accordingly, Executive agrees that if he/she breaches, or threatens to breach, any of the Protective Covenants or any of theother agreements of Executive contained in this Section 8, Employer shall be entitled, in addition to all other rights or remedies that itmay have under this Agreement or under applicable law, to bring an equitable proceeding in any court of competent jurisdiction and, inany such proceeding, to be awarded (i) temporary, preliminary and permanent injunctive relief to require Executive to halt any suchbreach, or to refrain from committing any threatened breach (as the case may be), of any of such Protective Covenants or otheragreements, and (ii) such other appropriate equitable remedies to require Executive to comply with such Protective Covenants and otheragreements, without having to show or prove any actual monetary damages to Employer. Employer shall not be required to post a bondor monetary or other security as a condition to the issuance or continuation of any such injunctive relief or the granting or continuanceof such other equitable remedies provided for in this Section 8(l).”9. Arbitration of Disputes. Except as otherwise provided in Section 8(i) above and the last sentence of this Section 9 withrespect to equitable proceedings and remedies, any controversy or claim arising out of or relating to this Agreement, the performance ornon-performance (actual or alleged) by either party of any of such party’s respective obligations hereunder or any actual or allegedbreach thereof, or otherwise arising out of the Executive’s employment or the termination of that employment (including, withoutlimitation, any claims of unlawful employment discrimination whether based on age or otherwise) shall, to the fullest extent permittedby law, be resolved exclusively by binding arbitration in any forum and form agreed upon by the parties or, in the absence of such anagreement, under the auspices of the American Arbitration Association (“AAA”) in Orange County, California in accordance with theEmployment Dispute Resolution Rules of the AAA, including, but not limited to, the rules and procedures applicable to the selection ofarbitrators. In the event that any Person other than Executive or Employer may be a party with regard to any such controversy or claim,such controversy or claim shall be submitted to arbitration subject to such other Person’s agreement thereto. Judgment upon the awardrendered by the arbitrator in any such arbitration proceeding may be entered in any court having jurisdiction thereof. This Section 9shall be specifically enforceable. The reasonable fees and disbursements of the prevailing party’s legal counsel, accountants and expertsincurred in connection with any such arbitration proceeding shall be paid by the non-prevailing party in such arbitration proceeding.Notwithstanding anything to the contrary that may be contained in this Section 9, each party shall be entitled to bring an action in anycourt of competent jurisdiction for the purpose of obtaining a temporary restraining order or a preliminary or permanent injunction orother equitable remedies in circumstances in which such relief is appropriate. 11Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.10. Miscellaneous.(a) Entire Agreement. This Agreement, together with the Exhibits hereto, constitutes the entire agreement betweenthe parties relating to the subject matter hereof and supersedes all prior agreements, whether written or oral, between the parties withrespect to that subject matter.(b) Assignment; Successors and Assigns, etc. Neither Employer nor Executive may make any assignment, in wholeor in part, of this Agreement or any interest herein, by operation of law or otherwise, or delegate any of their respective dutieshereunder, without the prior written consent of the other party; provided, however, that Employer shall be entitled to assign thisAgreement and delegate its duties under this Agreement, without the consent of Executive, in the event that Employer shallconsummate a reorganization, consolidate or merge with or into any other Person, or sell or otherwise transfer all or substantially all ofits assets to any other Person. Subject to the foregoing restrictions on assignment, this Agreement shall inure to the benefit of and bebinding on Employer and Executive, and their respective successors, executors, administrators, heirs and permitted assigns.(c) Enforceability. If any portion or provision of this Agreement (including, without limitation, any portion orprovision of any section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction,then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it isso declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid andenforceable to the fullest extent permitted by law. Notwithstanding the foregoing, the provisions of Section 8(f), and not the provisionsof this Section 10(c), shall apply to the covenants and other agreements contained in and the provisions of Section 8 hereof.(d) Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waivingparty. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party ofany right or obligation under or breach of this Agreement, shall not prevent any subsequent enforcement of such term, right orobligation or be deemed a waiver of any prior or subsequent breach of the same obligation.(e) Notices. Any notices, requests, demands and other communications provided for by this Agreement (“Notices”)shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service or by registered orcertified mail, postage prepaid, return receipt requested, to Executive at the last address Executive has filed in writing with the Employeror, in the case of any Notice to be given to Employer, at its main offices, attention of the Chief Executive Officer, and shall be effectiveon the date of delivery in person or by courier or three (3) days after the date such Notice is mailed by registered or certified mail,postage prepaid and return receipt requested (whether or not the requested receipt is returned).(f) Amendment. This Agreement may be amended or modified only by a written instrument signed by theExecutive and by a duly authorized representative of the Employer.(g) Interpretation and Construction of this Agreement. This Agreement is the result of arms-length bargaining bythe parties, each party was represented by legal counsel of such party’s choosing in connection with the negotiation and drafting of thisAgreement and no provision of this Agreement shall be construed against a party, due to an ambiguity therein or otherwise, by reasonof the fact that such provision may have been drafted by counsel for such party. For purposes of this Agreement: (i) the term “Person”shall mean, in addition to any natural person, a corporation, limited liability company, general or limited partnership, joint venture,trust, estate or any other entity; (ii) when used with reference to Employer, the term “Affiliate” shall mean any Person that controls, iscontrolled by or is under common control with Employer and shall include Parent and its other subsidiaries; (iii) the term “including”shall mean “including without limitation” or “including but not limited to”; (iv) the term “or” shall not be deemed to be exclusive; and(v) the terms “hereof,” “herein,” “hereinafter,” “hereunder,” and “hereto,” and any similar terms shall 12Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.refer to this Agreement as a whole and not to the particular Section, paragraph or clause in which any such term is used, unless thecontext in which any such term is used clearly indicates otherwise.(h) Governing Law. This Agreement is being entered into and will be performed in the State of California and shallbe construed under and be governed in all respects by and enforced under the laws of the State of California, without giving effect tothe conflict of laws principles of such State.(i) Headings. The Section and paragraph headings in this Agreement are inserted for convenience of reference onlyand shall not affect, nor shall be considered in connection with, the construction or application of any of the provisions of thisAgreement.(j) Counterparts. This Agreement may be executed in any number of counterparts, and each such executedcounterpart, and any photocopy or facsimile copy thereof, shall constitute an original of this Agreement; but all such executedcounterparts and photocopies and facsimile copies thereof shall, together, constitute one and the same instrument.IN WITNESS WHEREOF, this Agreement has been executed by Employer and by Executive as of the Effective Date.EMPLOYER: FIRST FOUNDATION BANK FIRST FOUNDATION INC.By: /S/ JOHN MICHEL By: /S/ JOHN MICHELName: John Michel Name: John MichelTitle: Chief Financial Officer Title: Chief Financial OfficerEXECUTIVE /S/ Dave O. Rahn Name: Dave O. Rahn 13Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.FIRST AMENDMENT TO EMPLOYMENT AGREEMENTThis FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (the “First Amendment” or this “Amendment”) is made as ofAugust 15, 2012 (the “Effective Date”), by and between First Foundation Bank, a California state chartered banking corporation(“Employer”), and Dave O. Rahn (“Executive”), with reference to the following:RECITALSWHEREAS, Employer and Executive are parties to that certain Employment Agreement dated as of December 31, 2009 (the“Employment Agreement”); which amended and restated a certain employment agreement made as of September 17, 2007; andWHEREAS, Employer is a bank chartered by the Department of Financial Institutions of the State of California (the “DFI”)and conducts a banking business as a wholly-owned subsidiary of First Foundation Inc. (“Parent”), which, through its subsidiaries(collectively “Affiliates”), provides commercial banking, investment management, wealth management, advisory services, trust servicesand other financial services to the public.WHEREAS, Employer and Executive desire to amend the Employment Agreement in the manner and to the extent set forthhereinafter.AGREEMENTNOW, THEREFORE, for good and valuable consideration, the adequacy and receipt of which is hereby acknowledged, andwith the intent to be legally bound hereby, Employer and Executive agree as follows:1. Amendment to Section 2. The first sentence of Section 2 of the Employment Agreement, entitled “Capacity” is herebyamended to read in its entirety as follows:“The Executive shall serve the Employer as its President.”2. Amendment to Section 4. The second sentence of Section 4 of the Employment Agreement, entitled “Term” is hereby amendedto read in its entirety as follows:“The expiration date of the Term of the Agreement is hereby extended to December 31, 2014.”3. Amendment to Section 5(a). The first sentence of Section 5(a) of the Employment Agreement, entitled “Salary” is herebyamended to read in its entirety as follows:“For all services rendered by Executive under this Agreement, Employer shall pay Executive a salary at the annual rate ofTwo Hundred Fifty Thousand ($250,000), as the same may be increased in the sole discretion of the Board or itsCompensation Committee (the “Compensation Committee”), at any time or from time to time hereafter (the “Base AnnualSalary”).”4. Amendment to Section 6(f)(i). The term “OTS” in Section 6(f)(i) of the Employment Agreement, is hereby amended to read“DFI”: 14Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.5. Amendment to Section 6(f)(ii). Section 6(f)(ii) of the Employment Agreement, is hereby amended to read in its entirety asfollows:“(ii) the Director of the DFI, or his or her designee, requires this Agreement to be terminated due to (A) the entry, by theFederal Deposit Insurance Corporation (the “FDIC”) into an agreement to provide assistance to or on behalf of the Employerunder the authority contained in 13(c) of the FDIA; or (B) the approval of a supervisory merger to resolve problems related tooperations of the Employer; or (C) a determination by Director of the DFI that the Employer is in an unsafe or unsoundcondition.”6. Amendment to Section 8(b)(ii). The clause “Office Thrift Supervision (“OTS”) and the Federal Deposit Insurance Corporation(the “FDIC”)” in the first sentence of Section 8(b)(ii) of the Employment Agreement, is hereby amended to “DFI and the FDIC”:IN WITNESS WHEREOF, this Amendment Agreement has been executed by Employer and by Executive as of the date firstabove written.EMPLOYER: FIRST FOUNDATION BANK FIRST FOUNDATION INC.By: /S/ JOHN MICHEL By: /S/ JOHN MICHELName: John Michel Name: John MichelTitle: Chief Financial Officer Title: Chief Financial OfficerEXECUTIVE /S/ Dave O. Rahn Name: Dave O. Rahn 15Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.SECOND AMENDMENT TO EMPLOYMENT AGREEMENTThis SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (the “Second Amendment” or this “Amendment”) is madeas of August 31, 2013 (the “Effective Date”), by and between First Foundation Bank, a California state chartered banking corporation(the “Employer”), and Dave O. Rahn (“Executive”), with reference to the following:RECITALSWHEREAS, Employer and Executive are parties to that certain Employment Agreement dated as of December 31, 2009 (the“Employment Agreement”); which amended and restated a certain employment agreement made as of September 17, 2007; which wassubsequently amended on August 15, 2012; andWHEREAS, Employer is a bank chartered by the Department of Business Oversight of the State of California (the “DBO”) andconducts a banking business as a wholly-owned subsidiary of First Foundation Inc. (“Parent”), which, through its subsidiaries(collectively “Affiliates”), provides commercial banking, investment management, wealth management, advisory services, trust servicesand other financial services to the public.WHEREAS, Employer and Executive desire to amend the Employment Agreement in the manner and to the extent set forthhereinafter.AGREEMENTNOW, THEREFORE, for good and valuable consideration, the adequacy and receipt of which is hereby acknowledged, andwith the intent to be legally bound hereby, Employer and Executive agree as follows:7. Amendment to Section 4. The second sentence of Section 4 of the Employment Agreement, entitled “Term” is hereby amendedto read in its entirety as follows:“The expiration date of the Term of the Agreement is hereby extended to December 31, 2016.”IN WITNESS WHEREOF, this Amendment Agreement has been executed by Employer and by Executive as of the date firstabove written.EMPLOYER: FIRST FOUNDATION BANK FIRST FOUNDATION INC.By: /S/ JOHN MICHEL By: /S/ JOHN MICHELName: John Michel Name: John MichelTitle: Chief Financial Officer Title: Chief Financial OfficerEXECUTIVE/S/ Dave O. Rahn Name: Dave O. Rahn 16Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.14EMPLOYMENT AGREEMENTThis EMPLOYMENT AGREEMENT (the “Agreement”) amends and restates the Employment Agreement made as ofSeptember 17, 2007, by and between First Foundation Inc., a California corporation, First Foundation Advisors (“FFA”), a Californiacorporation, First Foundation Bank (“FFB”), a federal savings bank (collectively the “Employer”), and John M. Michel (the“Executive”). The effective date of this amended and restated Agreement is December 31, 2009 (the “Effective Date”).WHEREAS, FFB is a federal savings bank chartered by the Office of Thrift Supervision (the “OTS”),and conducts a bankingbusiness, FFA is engaged in the business of providing investment management, wealth management and advisory services primarily tohigh net worth individuals, and both FFB and FFA are wholly-owned subsidiaries of First Foundation Inc. (“Parent”), which, through itssubsidiaries (collectively “Affiliates”), provides commercial banking, investment management, wealth management, advisory services,trust services and other financial services to the public.WHEREAS, Employer desires to employ Executive, and Executive desires to be employed by Employer, in accordance withthe terms and subject to the conditions hereof.NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the Employer and the Executiveagree as follows:1. Employment. Employer agrees to employ Executive and Executive agrees to be employed by Employer, on a full timebasis, on the terms and conditions set forth in this Agreement.2. Capacity. The Executive shall serve the Employer as its Executive Vice President and Chief Financial Officer. TheExecutive shall be principally responsible for budgeting, asset liability management, regulatory and financial reporting, strategicplanning and project management, subject to the directions of the Employer’s Board of Directors (the “Board”) or Chief ExecutiveOfficer (the “CEO”). Executive shall also serve Employer in such other or additional offices and capacities as the Executive may berequested to serve by the Board or the CEO and shall perform such services and duties in connection with the business, affairs andoperations of, Employer as may be assigned or delegated from time to time to Executive, when rendering services in such other oradditional capacities, by or under the authority of the Board or the CEO.3. Extent of Service. During Executive’s employment under this Agreement, Executive shall devote Executive’s fullbusiness time, best efforts and business judgment, skill and knowledge to the advancement of Employer’s business and interests and tothe discharge of Executive’s duties and responsibilities under this Agreement. Executive shall not engage in any other business activity,except as may be approved in writing and in advance by the Board; provided, however, that nothing in this agreement shall beconstrued as preventing Executive from:(a) investing Executive’s assets in any company or other entity in a manner not prohibited by Section 8(d) hereofand in such form or manner as shall not require any material activities on Executive’s part in connection with the operations or affairs ofthe companies or other entities in which such investments are made; or(b) engaging in religious, charitable or other community or non-profit activities that do not impair Executive’sability to fulfill his/her duties and responsibilities under this Agreement.4. Term. Unless sooner terminated pursuant to Section 6 hereof, the original term of Executive’s employment withEmployer pursuant to this Agreement was to be a period of three (3) consecutive years (the “Term”), commencing on September 17,2007 (the “Employment Commencement Date”) and ending on September 17, 2010. The expiration date of the Term of the Agreementis hereby extended to December 31, 2012. Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.5. Compensation and Benefits. The regular compensation and benefits payable to Executive under this Agreement shall beas follows:(a) Salary. For all services rendered by Executive under this Agreement, Employer shall pay Executive a salary atthe annual rate of One Hundred Ninety Thousand dollars ($190,000), as the same may be increased in the sole discretion of the Boardor its Compensation Committee (the “Compensation Committee”), at any time or from time to time hereafter (the “Base AnnualSalary”). Executive’s Base Annual Salary shall be payable in periodic installments in accordance with Employer’s usual payrollpractices for its senior executives.(b) Bonus Compensation. Executive shall be entitled to participate in the annual incentive bonus programs forEmployer’s senior executives; provided, however, that nothing contained in this Section 5(b) or elsewhere in this Agreement shall beconstrued to create any obligation on the part of Employer to maintain the effectiveness of any annual incentive bonus program. Theperformance measures and goals that will be used to determine Executive’s entitlement to an annual incentive bonus under any suchbonus program that is established by Employer shall be determined by the Board or the Compensation Committee.(c) Regular Employee Benefits. Executive shall be entitled to participate in any qualified or any other retirementplans, stock option and equity incentive plans, stock purchase plans, medical insurance plans, life insurance plans, disability insuranceor income plans, vacation plans, expense reimbursement plans and other benefit plans which Employer may from time to time have ineffect for all or most of its senior executives; provided, however, that nothing contained in this Section 5(c) or elsewhere in thisAgreement shall be construed to create any obligation on the part of Employer to establish any such plan or to maintain theeffectiveness of any such plan which may be in effect from time to time during the Term. The extent and the terms and conditions ofExecutive’s participation in any such plan shall be subject to the terms and conditions in the applicable plan documents, generallyapplicable policies of the Employer, applicable law and the discretion of the Board, the Compensation Committee or any administrativeor other committee provided for in or contemplated by any such plan.(d) Reimbursement of Business Expenses. Employer shall reimburse Executive for all reasonable expenses incurredby him/her in performing services pursuant to this Agreement, in accordance with Employer’s expense reimbursement policies andprocedures for its senior executives, as in effect from time to time.(e) Taxation of Compensation Payments and Benefits. Employer shall be entitled and shall undertake to makedeductions, withholdings and tax reports with respect to compensation payments and benefits to Executive under this Agreement to theextent that Employer reasonably and in good faith believes that it is required to make such deductions, withholdings and tax reports.Payments under this Agreement shall be in amounts net of any such deductions or withholdings. Nothing in this Agreement shall beconstrued to require Employer to make any payments to compensate Executive for any adverse tax consequences associated with orarising out of any payments or benefits or for any deduction or withholding from any payments or benefits.(f) Exclusivity of Salary and Benefits. Except as otherwise set forth in Exhibit A hereto, Executive shall not beentitled to any payments or benefits other than those expressly provided for in this Agreement. 2Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.6. Termination of Employment. Notwithstanding the provisions of Section 4, Executive’s employment under thisAgreement shall terminate prior to the end of the Term under the following circumstances and in accordance with the terms andprovisions set forth below in this Section 6.(a) Termination by Employer for Cause. Executive’s employment under this Agreement may be terminated forCause, without further liability on the part of Employer, effective immediately upon a vote of the Board and written notice to theExecutive. Each of the following shall constitute “Cause” that shall entitle Employer to terminate Executive’s employment for Cause:(i) any act of gross negligence, willful misconduct or insubordination by Executive with respect toEmployer or any of its Affiliates, or any act of fraud, whether or not involving Employer or any Affiliate of Employer; or(ii) a violation by Executive of any laws or government regulations applicable to Employer whichcould reasonably be expected to subject Employer or any of its Affiliates (including any of their respective officer ordirectors) to disciplinary or enforcement action by any governmental agency, including the assessment of civil moneydamages on Employer, or which could reasonably be expected to adversely affect Employer’s or any of its Affiliatesreputation or goodwill with clients, customers, regulatory agencies or suppliers doing business with the Employer or any ofits Affiliates; or(iii) the issuance of an order under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (the“FDIA”) requiring Executive to be removed or permanently prohibited from participating in the conduct of the Employer’sbusiness; or(iv) the commission by Executive of an act which would constitute (A) a felony or (B) anymisdemeanor involving moral turpitude, deceit, dishonesty or fraud; or(v) any failure of Executive to perform, to the reasonable satisfaction of the Board, a substantialportion of Executive’s duties and responsibilities assigned or delegated to him/her under this Agreement, which failurecontinues, in the judgment of the Board, for more than thirty (30) days following the giving of written notice to Executive ofsuch failure; or(vi) a breach by Executive of any of Executive’s material obligations under this Agreement, whichbreach remains uncured within fifteen (15) days following Executive’s receipt of written notice of the existence of suchbreach and, for such purposes, the term “material obligations” shall include each of Executive’s covenants and obligationscontained in Section 8 hereof; or(vii) a violation by Executive of any conflict of interest policy, ethical conduct policy or employmentpolicy adopted by Employer or Parent or a breach by Executive of any of his/her fiduciary duties to Employer or Parent; or(viii) the issuance of an order or directive by any government agency having jurisdiction over Employeror any of its Affiliates or over Executive which requires Executive to disassociate himself/herself from Employer or any of itsAffiliates, suspends Executive’s employment or requires Employer to terminate Executive’s employment; or(b) Termination by Employer Without Cause. Executive’s employment under this Agreement may be terminated byEmployer without Cause upon written notice to Executive, whereupon Executive shall become entitled to the severance compensationand benefits set forth in Section 7(b) of this Agreement. Notwithstanding anything to the contrary that may be contained in thisAgreement, it is acknowledged and agreed that a termination pursuant to any of Sections 6(d) (entitled “Termination due to Death”),6(e) (entitled “Disability”) or 6(f) (entitled “Expiration of Term”) below, shall not be deemed to be or constitute a termination withoutCause for purposes of this Agreement.” 3Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(c) Termination by Executive for Good Reason. Subject to the terms and conditions set forth hereinafter in thisSection 6(c), Executive shall be entitled to terminate this Agreement and his/her employment with Employer hereunder for “GoodReason” and to receive the severance compensation set forth in Section 7(b) below, if Employer takes any of the actions set forth inclauses (i) through (iv) below (each a “Good Reason Action”):(i) Reduction or Adverse Change of Authority and Responsibilities. Employer materially reducesExecutive’s authority, duties or responsibilities with Employer, unless such reduction is made as a consequence of (i) anyacts or omissions of Executive which would entitle Employer to terminate Executive’s employment for Cause (as defined inSection 6(a) of this Agreement), or (ii) Executive’s Disability (determined as provided in Section 6(e) of this Agreement);(ii) Material Reduction in Salary. Employer materially reduces Executive’s base salary or basecompensation below the amount thereof as prescribed by Executive’s Employment Agreement, unless such reduction ismade (A) as part of an across-the-board cost-cutting measure that is applied equally or proportionately to all seniorexecutives of Employer, rather than discriminatorily against Executive, or (B) as a result of any acts or omissions ofExecutive which would entitle Employer to terminate Executive’s employment for Cause (as defined in Section 6(a) of thisAgreement), or (C) by and at the election of the Employer as a result of Executive’s Disability (determined as provided inSection 6(e) of this Agreement);(iii) Relocation. Employer relocates Executive’s principal place of employment to an office (other thanEmployer’s headquarters offices) located more than thirty (30) miles from Executive’s then principal place of employment(other than for temporary assignments or required travel in connection with the performance by Executive of his/her dutiesfor Employer); or(iv) Breach of Material Employment Obligations. Employer commits a breach of any of its materialobligations to Executive under this Agreement which breach continues uncured for a period of thirty (30) days followingwritten notice thereof from Executive.Notwithstanding anything to the contrary that may be contained in this Section 6(c) or elsewhere in this Agreement: (x) thefollowing conditions must be satisfied in order for Executive to terminate this Agreement and his/her employment for Good Reason:(1) Executive shall have given Employer a written notice of termination for Good Reason (a “Good Reason Termination Notice”) priorto the expiration of a period of fifteen (15) consecutive calendar days commencing on the date that Executive is first notified in writingthat Employer has taken any such Good Reason Action, (2) Employer shall have failed to rescind or cure such Good Reason Actionwithin thirty (30) consecutive calendar days following its receipt of such Good Reason Termination Notice, and (3) the Good ReasonTermination Notice must expressly state that Executive is terminating his/her employment for Good Reason pursuant to this Section 6(c)and must describe in reasonable detail the Good Reason Action that entitles Executive to terminate this Agreement and his/heremployment for Good Reason; and (y) Executive shall not be entitled to terminate his/her employment for Good Reason, if Executiveshall have consented to the taking of such Good Reason Action by Employer or if Employer was required to take any of the above-described actions in order to comply with any applicable laws or government regulations or any order, ruling, instruction ordetermination of any court or other tribunal or any government agency having jurisdiction over Employer or any of its Affiliates.”(d) Termination due to Death. Executive’s employment with Employer shall terminate upon his/her death. 4Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(e) Disability. If Executive shall become disabled so as to be unable to perform the essential functions ofExecutive’s then existing position or positions with Employer or with any of Employer’s Affiliates under this Agreement, then, upon theexpiration of the lesser of (i) six (6) months thereafter or (ii) the then remainder of the Term of this Agreement (the “Interim DisabilityPeriod”), Executive’s employment may be terminated by Employer without liability to Executive, subject to the following terms andprovisions. The Board may remove Executive from any responsibilities and/or reassign Executive to another position with Employer forand the during the Interim Disability Period, provided, however, that Executive shall continue to receive his/her full Base Annual Salary(less any disability pay or sick pay benefits to which the Executive may be entitled under the Employer’s policies or benefit programs),together with benefits Executive receives pursuant to Section 5 hereof (except to the extent that Executive may be ineligible for one ormore such benefits under applicable plan terms), for and during the Interim Disability Period. If any question shall arise as to whetherExecutive is disabled so as to be unable to perform the essential functions of Executive’s then existing position or positions, with orwithout reasonable accommodation, Executive may, and at the request of Employer shall, submit to Employer a physician’scertification (in reasonable detail) as to whether Executive is so disabled and how long such disability is expected to continue. Suchcertification shall be obtained only from a physician who is selected by Employer and to whom Executive or Executive’s guardian (asthe case may be) has no reasonable objection and the certification so obtained shall for purposes of this Agreement be conclusive ofsuch question or any issue as to the matters addressed in such certification. Executive shall cooperate with any reasonable request ofthat physician in connection with such certification, including a request that Executive undergo any physical or mental examination ortests, as deemed appropriate by such physician. If Executive shall fail to submit to such an examination or any such tests, as suchphysician deems in his/her discretion to be appropriate for purposes of enabling physician to make such certification, then, Employer’sdeterminations with respect to the questions of whether Executive is disabled and how long such disability is expected to continue shallbe binding on Executive. Nothing in this Section 6(d) shall be construed to waive the Executive’s rights, if any, under existing lawincluding, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. §2601 et seq. and the Americans with DisabilitiesAct, 42 U.S.C. §12101 et seq.(f) Terminations due to Certain Regulatory Actions Affecting Employer. Notwithstanding anything to the contrarythat may be contained elsewhere in this agreement, this Agreement, and Executive’s employment hereunder shall terminate, on theoccurrence of any of the following events:(i) A conservator, receiver, or other legal custodian is appointed for the Employer pursuant to anyadjudication or other official determination by any court of competent jurisdiction, the OTS, or any governmental authorityhaving jurisdiction over Employer; or(ii) the Director of the OTS, or his or her designee, requires this Agreement to be terminated due to(A) the entry, by the Federal Deposit Insurance Corporation (the “FDIC”) into an agreement to provide assistance to or nbehalf of the Employer under the authority contained in 13(c) of the FDIA; or (B) the approval of a supervisory merger toresolve problems related to operations of the Employer or (C) a determination by Director of the OTS that the Employer is inan unsafe or unsound condition.(g) Expiration of Term. Executive’s employment under this Agreement shall terminate automatically on and as ofthe expiration date of the Term (whether that is at the end of the Original Term or any Renewal Period), unless the parties shall haveexecuted a written agreement of renewal as contemplated in Section 4 hereof. 5Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(h) Survival. Upon expiration or any termination of Executive’s employment with Employer pursuant to any of theprovisions of this Section 6, this Agreement also shall terminate; provided, however, that the following shall survive and remain in fullforce and effect after the expiration or any termination of this Agreement: (i) the respective representations and warranties of each partycontained in this Agreement, which shall continue in effect throughout the Term, and (ii) the respective rights, obligations andcovenants and agreements of the parties contained in Sections 7 (entitled “Compensation Upon Termination”), Section 8 (entitled“Protective Covenants”), Section 9 (entitled “Arbitration of Disputes”) and Section 10 (entitled “Miscellaneous”) hereof.(i) Suspension of Employment. If Executive is suspended and/or temporarily prohibited from participating in theconduct of the Employer’s business by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (a “Suspension Notice”), theEmployer’s obligations under the Agreement shall be suspended as of the date on which service of such Suspension Notice is made,unless such suspension is stayed by appropriate proceedings. If the charges in the Suspension Notice are dismissed, Employer may, inits discretion (i) pay the Executive all or part of the compensation withheld while Employer’s obligations hereunder were suspended,and (ii) reinstate (in whole or in part) any of the obligations of Employer that were suspended.7. Compensation Upon Termination.(a) Termination Generally. If Executive’s employment with Employer expires or is terminated (whether byEmployer or Executive) for any reason during the Term, Employer shall pay or provide to Executive (or to his/her authorizedrepresentative or estate): (i) any unpaid Base Annual Salary earned through the date of such termination; (ii) any unpaid incentivecompensation that is deemed earned and has become payable under the terms of any incentive compensation program in whichExecutive was participating at the time of or had participated prior to such expiration or termination of employment; (iii) unpaidexpense reimbursements; (iv) accrued but unused vacation, and (v) any vested benefits Executive may have earned under anyemployee benefit plan of Employer or Parent prior to the expiration or termination of Executive’s employment; provided, however, thatnotwithstanding the foregoing provisions of this Section 7(a), if Executive’s employment is terminated for Cause pursuant toSection 6(a) above or pursuant to Section 6(f), due to certain Regulatory Actions, then, unless otherwise required by applicable law,Executive shall not be entitled to receive any unpaid incentive compensation that might otherwise have been due to Executive.(b) Termination by the Employer Without Cause or by Executive for Good Reason. In the event of a termination ofExecutive’s employment by Employer without Cause pursuant to Section 6(b) above, or by Executive for Good Reason pursuant toSection 6(c) above, then subject to Executive’s execution and delivery of an agreement, that is satisfactory in a form and substance toEmployer, releasing any and all legal claims (known or unknown) Executive may have against Employer or any or its Affiliates,Employer shall provide to Executive the following termination benefits (“Termination Benefits”):(i) A severance payment (the “Severance Payment”) in an amount equal to (x) twelve (12) months ofExecutive’s Base Annual Salary or (y) the aggregate Base Annual Salary that would have been paid to Executive for theremainder of the Term of the Agreement if such remaining Term is shorter than the aforementioned 12 month period, as thecase may be (the “Termination Benefits Period”); and(ii) continuation during the Termination Benefits Period of group health plan benefits to the extentauthorized by and consistent with 29 U.S.C. § 1161 et seq. (commonly known as “COBRA”), subject to payment ofpremiums by Executive at the active employee’s rate (the Health Insurance Cost Sharing Benefit”). 6Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Notwithstanding the foregoing provisions of this Section 7(b) or any other provision of this Agreement to the contrary, (A) theSeverance Payment and the Health Insurance Cost Sharing Benefit that would otherwise be payable to Executive pursuant to thisSection 7(b) shall be reduced by the amount of any severance compensation or health insurance benefits that are due or are otherwisepaid to Executive under any separate severance compensation or change in control or similar agreement between Executive, on the onehand, and Employer or Employer’s Parent, on the other hand, or any severance pay or stay bonus plan of Employer or Parent(irrespective of when such agreement is entered into or such plan becomes effective); (B) if Executive commences any employmentwith another employer during the Termination Benefits Period and that other employer offers group health plan or health insurancebenefits reasonably comparable to those available from Employer, then, the Health Insurance Cost Sharing Benefit provided underparagraph 7(b)(ii) above shall cease to be payable as of the date of commencement of such employment; and (C) nothing in thisSection 7(b) shall be construed to affect Executive’s right to receive COBRA continuation entirely at Executive’s own cost to the extentthat Executive may continue to be entitled to COBRA continuation after the Executive’s Health Insurance Cost Sharing Benefit underthis Section 7(b)(ii) ceases. Executive shall be obligated to give prompt notice of the date of commencement of any employment duringthe Termination Benefits Period and shall respond promptly to any reasonable inquiries concerning any employment in whichExecutive may be engaged during the Termination Benefits Period. The Termination Benefits shall be paid by Employer in installmentsin accordance with the customary payroll practices of Employer (net of required deductions and withholdings).(c) Termination Upon Death. In the event of a termination of Executive’s employment due to death, Employer shallpay to Executive’s estate an amount equal to one hundred percent (100%) of Executive’s Base Annual Salary at the rate in effectimmediately prior to such termination (the “Death Benefit”), less the amount of any life insurance benefits which Executive’s estate orany of Executive’s beneficiaries receive under any Employer-provided life insurance plan or program in which Executive wasparticipating at the time of his/her death. Any Death Benefit payable pursuant to this Section 7(c) shall be paid in a lump sum payment(net of any tax and any other required withholdings) to the beneficiary designated in writing by Executive, or if no beneficiary wasdesignated, to his/her estate, as soon as is practicable following Executive’s death.(d) Exclusivity of Termination Benefits. Except as may otherwise be set forth in Exhibit A hereto, Executive shallnot be entitled to any payments or benefits due to the expiration or termination of Executive’s employment with Employer other thanthose benefits that are expressly provided for in this Section 7. Without limiting the generality of the foregoing, the TerminationBenefits set forth in Section 7(b), together with any severance benefits that Executive may be entitled to receive under any separateseverance compensation or change of control or stay-pay agreement to which executive may be a party or any separate severance orstay pay plan in which Executive may be a participant, shall constitute the exclusive rights and remedies against Employer and itsAffiliates to which Executive shall be entitled by reason of termination or Executive’s employment by Employer without Cause or byExecutive for Good Reason or for any damages arising therefrom.8. Protective Covenants.(a) Certain Definitions.(i) Confidential Information. As used in this Agreement, “Confidential Information” means informationbelonging to Employer or any of its Affiliates which is of value to Employer or any such Affiliates in the course ofconducting any of their respective businesses and the disclosure of which could result in a competitive or other disadvantageto Employer or any such Affiliates. Confidential Information includes, without limitation, financial information, includingfinancial statements and projections, business and expansion or growth plans, reports, and forecasts; inventions,improvements and other intellectual property; trade secrets; know-how; designs, processes or formulae; software; market orsales information or plans; customer lists and 7Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.information regarding, or supplied to Employer or any of its Affiliates by, any of their respective existing or prospectivecustomers; supplier lists and information about, or provided to Employer or any of its Affiliates by, any of their respectivesuppliers, vendors or consultants; information regarding the capabilities, duties or compensation of employees of Employeror of any its Affiliates; and information regarding the business prospects and opportunities of Employer or any of itsAffiliates (such as possible acquisitions or dispositions of businesses or facilities). Confidential Information also includesinformation developed by Executive in the course of Executive’s employment by Employer, as well as other information towhich the Executive may have access in connection with Executive’s employment, and the confidential information ofothers with which Employer has a business relationship. Notwithstanding the foregoing, Confidential Information does notinclude information in the public domain, unless such information entered the public domain as a result of a breach of any ofExecutive’s covenants under Section 8(b). Executive acknowledges and agrees that Employer has a legitimate businessinterest in protecting the Confidential Information.(ii) Competing Business. For purposes of this Agreement, the term “Competing Business” shall mean abusiness conducted anywhere within [the counties of Orange, San Diego, Los Angeles, San Bernardino and Riverside, in thestate of California] which is located within forty (40) miles of any office or facility used by Employer or any of its Affiliateswhich is competitive with any business which Employer or any of its Affiliates conducts or proposes to conduct at any timeduring Executive’s employment with Employer or any of its Affiliates, including, without limitation, the commercial bankingbusiness and the investment advisory services business.(b) Confidentiality.(i) Executive understands and agrees that Executive’s employment creates a relationship of confidenceand trust between Executive and Employer, including with respect to all Confidential Information, whether such ConfidentialInformation exists on the Employment Commencement Date or is created, developed or acquired or comes into being at anytime during the term of this Agreement. Executive covenants and agrees that, at all times (both during Executive’semployment with Employer and after its expiration or termination for any reason), Executive will keep all ConfidentialInformation in strict confidence and trust and will not disclose any of the Confidential Information to any Person, andExecutive covenants and agrees that he will not use any of the Confidential Information for Executive’s benefit or the benefitof any Person other than Employer and Parent and their Affiliates.(ii) In the event that Executive is requested or required (including by means of deposition,interrogatories, requests for information or documents in legal proceedings, subpoena, civil investigative demand or othersimilar process or by a tribunal, court or regulatory agency, (including, but not limited to, the Office Thrift Supervision(“OTS”) and the Federal Deposit Insurance Corporation (the “FDIC”)) having applicable jurisdiction, to disclose any of theConfidential Information, Executive shall, unless prohibited by law or regulation, provide Employer with prompt writtennotice of any such request or requirement so that Employer may seek a protective order or other appropriate remedy and/orwaive compliance with the provisions of this Section 8(b) with respect to such requested or required ConfidentialInformation. If, in the absence of a protective order or other remedy acceptable to Employer or the receipt of a waiver fromEmployer, Executive is nonetheless legally required to disclose such Confidential Information to any tribunal, court orgovernment agency to avoid being held liable for contempt or suffering other censure or penalty, Executive may, withoutthereby violating this Section 8(b) or incurring any liability to Employer hereunder, disclose 8Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.only that portion of the Confidential Information that Executive is legally required to disclose. In any case, Executive shallcooperate with Employer in any efforts it may undertake to preserve the confidentiality of such Confidential Information,including, without limitation, by cooperating with Employer’s efforts to obtain an appropriate protective order or otherreliable assurance that confidential treatment will be accorded the Confidential Information.”(c) Documents, Records, etc. All documents, records, data, apparatus, equipment and other physical property,including cell phones and computers, and whether or not pertaining to Confidential Information, which are furnished to Executive byEmployer or which are produced by Executive in connection with Executive’s employment, will be and remain the sole property ofEmployer. Executive will return to Employer all such materials and property as and when requested by Employer or if no requesttherefor has theretofore been made, then, immediately upon the expiration or termination of Executive’s employment with Employer forany reason whatsoever. Executive covenants and agrees that he/she will not retain any such materials or property or any copies thereofafter any such expiration or termination of his/her employment with Employer.(d) Noncompetition Covenant. During the Term of this Agreement, Executive will not, directly or indirectly,whether as owner, partner, shareholder, consultant, agent, employee, co-venturer, lender or creditor or otherwise, engage, participate,assist, support or invest in any Competing Business.(e) Non-Solicitation Covenant. Executive covenants and agrees that, during the Term and for a period equal toeighteen (18) months thereafter, he shall not, either on behalf of himself or any other Person, directly or indirectly, solicit or attempt toemploy or hire or recruit or hire any Person who is, or during the prior twelve (12) months had been, an employee of Employer, itsParent or any of their Affiliates or induce or influence any such employee to leave the employ of Employer, Parent or any of theirrespective Affiliates.(f) Non-Interference Covenant. Executive acknowledges that in connection with and in the course of his/heremployment with Employer, Executive will have access to trade secrets and other Confidential Information of Employer, Parent andtheir respective Affiliates, which Confidential Information may include, without limitation, the identities of and information about thebanking and other financial service needs and the investment goals and plans of clients and customers of Employer, Parent or any oftheir respective its Affiliates. As a result of his/her employment with Employer, Executive also will be given, by Employer, Parent ortheir Affiliates, the opportunity, resources and Confidential Information which Executive will need to establish business relationshipswith existing and prospective clients and customers of Employer, Parent, or their Affiliates, all for the exclusive benefit of Employerand Parent or their respective Affiliates. Accordingly, Executive covenants and agrees that during the Term of his/her employment withEmployer and for a period of eighteen (18) months following the termination, for any reason whatsoever, of his/her employment withEmployer (including any voluntary termination or any termination for Good Reason by Executive or any termination by Employer withor without Cause), Executive shall not use any information that constitutes a trade secret or Confidential Information of Employer,Parent or any of their Affiliates to directly or indirectly, personally or through others, (i) solicit for or on behalf of any Person competingagainst Employer or its Affiliates, any existing or prospective client or customer of Employer, Parent or any of their Affiliates, or(ii) encourage or induce any client, customer, supplier or vendor of or service provider to Employer, Parent or any of their Affiliates toterminate or modify (in a manner adverse to any of them) the business relationship that any such client, customer, supplier, vendor orservice provider has with any of them.(g) Exception for Ownership of Shares in Public Companies. Notwithstanding the foregoing covenants, Executivemay own up to five percent (5%) of the outstanding capital stock of a publicly traded corporation which constitutes or is affiliated witha Competing Business, provided that 9Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Executive is a passive investor in that corporation and does not provide any assistance or support of any kind, financial or other (otherthan his/her ownership of such capital stock) to or serve in any capacity with, such corporation or any of its Affiliates.(h) Certain Acknowledgements. Executive (i) understands, acknowledges and agrees that each of the covenants andrestrictions set forth, respectively, in Subsections 8(b) through 8(f) above are intended to protect the interests of Employer, its Parentand their respective Affiliates in their trade secrets and other Confidential Information and established client, customer, supplier,vendor, employee and consultant relationships and the goodwill established by Employer, Parent or such Affiliates with or among theirrespective clients, customers, suppliers, vendors, employees and consultants, (ii) acknowledges and agrees that this Section 8 imposesno greater restraint or restriction on Executive than is reasonably necessary to protect the legitimate business interests of Employer,Parent and their Affiliates, and such restrictions are reasonable and appropriate for this purpose and will not adversely affectExecutive’s ability, following a termination of his/her employment with Employer, to earn a livelihood from his/her chosen profession,and (iii) acknowledges that the consideration received by him pursuant to this Agreement is good, valuable and adequate considerationin exchange for his/her covenants and agreements contained in this Section 8.(i) Severability. If any of the definitions contained in Section 8(a) or any of the covenants or agreements ofExecutive contained in Subsections 8(b), 8(c), 8(d), 8(e), or 8(f) above or in Subsections 8(j) or 8(k) below (collectively, the “ProtectiveCovenants”) is held by any court of competent jurisdiction to be unenforceable or unreasonable as to time, geographic coverage, orbusiness limitation, Executive and Employer agree that in any such instance that particular definition or that particular ProtectiveCovenant, as the case may be (the “Offending Provision”) shall be reformed to the maximum time, geographic area or businesslimitation (as the case may be) that will permit it to be enforced under applicable law. The parties further agree that, in any such event,all of the remaining definitions and Protective Covenants shall be severable, shall remain in full force and effect and shall beenforceable independently of each other and a holding by a court of competent jurisdiction that any definition or Protective Covenant isunenforceable or unreasonable to any extent shall not affect or impair the continued validity or enforceability of the other definitions orProtective Covenants contained in this Section 8(j) Third Party Agreements and Rights. Executive hereby represents and warrants that he is not bound by the termsof any contract or other agreement (written or oral) with any previous employer or other Person which restricts in any way Executive’suse or disclosure of information or Executive’s engagement in any business. Executive further represents and warrants to Employer thatExecutive’s execution and delivery of this Agreement, Executive’s employment with Employer and the performance of Executive’sduties for Employer pursuant to this Agreement will not violate any obligations, contractual or other, that Executive may have to anysuch previous employer or other Person. In Executive’s work for Employer, Executive will not disclose or make use of any informationin violation of any contracts or other agreements (written or oral) with or the rights of any such previous employer or other Person, andExecutive will not bring to the premises of Employer any copies or other tangible embodiments of non public information belonging toor obtained from any such previous employer or other Person.(k) Litigation and Regulatory Cooperation. During and after the Term of this Agreement, Executive shall cooperatefully with Employer, Parent and their Affiliates in the prosecution or defense of any claims or actions or other proceedings which hasbeen or may be brought on behalf of or against Employer, Parent or any of their Affiliates which relate to events or occurrences thattranspired while Executive was employed by Employer. Executive’s full cooperation in connection with such claims or actions shallinclude, but shall not be limited to, being available to meet with counsel to 10Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.prepare for discovery or trial and to act as a witness on behalf of Employer, Parent or any of their Affiliates at mutually convenienttimes. During and after the Term of this Agreement, Executive also shall cooperate fully with Employer, Parent and their Affiliates inconnection with any examination, investigation or review by any federal, state or local regulatory authority which covers any period, orrelates to events or occurrences that transpired, while Executive was employed by Employer. Executive acknowledges that theperformance by him of the covenants and duties set forth in this Section 8(k) during the term of this Agreement are part of his/her dutiesunder this Agreement and that he shall not be entitled to any compensation therefor that is separate from or in addition to his/hercompensation under this Agreement. If Executive performs any of the duties as required by this Section 8(k) after the Term of thisAgreement, as Executive’s compensation therefor, Employer shall reimburse Executive for any reasonable out-of-pocket expensesincurred in connection with the performance by Executive of his/her duties under this Section 8(k).(l) Equitable Remedies. Executive acknowledges and agrees that it would be difficult to measure the damages thatEmployer will sustain as a result of any breach by Executive of any of the Protective Covenants or any of the other agreements ofExecutive contained in this Section 8 and that monetary damages, in and of themselves, would not be an adequate remedy for any suchbreach. Accordingly, Executive agrees that if he/she breaches, or threatens to breach, any of the Protective Covenants or any of theother agreements of Executive contained in this Section 8, Employer shall be entitled, in addition to all other rights or remedies that itmay have under this Agreement or under applicable law, to bring an equitable proceeding in any court of competent jurisdiction and, inany such proceeding, to be awarded (i) temporary, preliminary and permanent injunctive relief to require Executive to halt any suchbreach, or to refrain from committing any threatened breach (as the case may be), of any of such Protective Covenants or otheragreements, and (ii) such other appropriate equitable remedies to require Executive to comply with such Protective Covenants and otheragreements, without having to show or prove any actual monetary damages to Employer. Employer shall not be required to post a bondor monetary or other security as a condition to the issuance or continuation of any such injunctive relief or the granting or continuanceof such other equitable remedies provided for in this Section 8(l).”9. Arbitration of Disputes. Except as otherwise provided in Section 8(i) above and the last sentence of this Section 9 withrespect to equitable proceedings and remedies, any controversy or claim arising out of or relating to this Agreement, the performance ornon-performance (actual or alleged) by either party of any of such party’s respective obligations hereunder or any actual or allegedbreach thereof, or otherwise arising out of the Executive’s employment or the termination of that employment (including, withoutlimitation, any claims of unlawful employment discrimination whether based on age or otherwise) shall, to the fullest extent permittedby law, be resolved exclusively by binding arbitration in any forum and form agreed upon by the parties or, in the absence of such anagreement, under the auspices of the American Arbitration Association (“AAA”) in Orange County, California in accordance with theEmployment Dispute Resolution Rules of the AAA, including, but not limited to, the rules and procedures applicable to the selection ofarbitrators. In the event that any Person other than Executive or Employer may be a party with regard to any such controversy or claim,such controversy or claim shall be submitted to arbitration subject to such other Person’s agreement thereto. Judgment upon the awardrendered by the arbitrator in any such arbitration proceeding may be entered in any court having jurisdiction thereof. This Section 9shall be specifically enforceable. The reasonable fees and disbursements of the prevailing party’s legal counsel, accountants and expertsincurred in connection with any such arbitration proceeding shall be paid by the non-prevailing party in such arbitration proceeding.Notwithstanding anything to the contrary that may be contained in this Section 9, each party shall be entitled to bring an action in anycourt of competent jurisdiction for the purpose of obtaining a temporary restraining order or a preliminary or permanent injunction orother equitable remedies in circumstances in which such relief is appropriate. 11Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.10. Miscellaneous.(a) Entire Agreement. This Agreement, together with the Exhibits hereto, constitutes the entire agreement betweenthe parties relating to the subject matter hereof and supersedes all prior agreements, whether written or oral, between the parties withrespect to that subject matter.(b) Assignment; Successors and Assigns, etc. Neither Employer nor Executive may make any assignment, in wholeor in part, of this Agreement or any interest herein, by operation of law or otherwise, or delegate any of their respective dutieshereunder, without the prior written consent of the other party; provided, however, that Employer shall be entitled to assign thisAgreement and delegate its duties under this Agreement, without the consent of Executive, in the event that Employer shallconsummate a reorganization, consolidate or merge with or into any other Person, or sell or otherwise transfer all or substantially all ofits assets to any other Person. Subject to the foregoing restrictions on assignment, this Agreement shall inure to the benefit of and bebinding on Employer and Executive, and their respective successors, executors, administrators, heirs and permitted assigns.(c) Enforceability. If any portion or provision of this Agreement (including, without limitation, any portion orprovision of any section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction,then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it isso declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid andenforceable to the fullest extent permitted by law. Notwithstanding the foregoing, the provisions of Section 8(f), and not the provisionsof this Section 10(c), shall apply to the covenants and other agreements contained in and the provisions of Section 8 hereof.(d) Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waivingparty. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party ofany right or obligation under or breach of this Agreement, shall not prevent any subsequent enforcement of such term, right orobligation or be deemed a waiver of any prior or subsequent breach of the same obligation.(e) Notices. Any notices, requests, demands and other communications provided for by this Agreement (“Notices”)shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service or by registered orcertified mail, postage prepaid, return receipt requested, to Executive at the last address Executive has filed in writing with the Employeror, in the case of any Notice to be given to Employer, at its main offices, attention of the Chief Executive Officer, and shall be effectiveon the date of delivery in person or by courier or three (3) days after the date such Notice is mailed by registered or certified mail,postage prepaid and return receipt requested (whether or not the requested receipt is returned).(f) Amendment. This Agreement may be amended or modified only by a written instrument signed by theExecutive and by a duly authorized representative of the Employer.(g) Interpretation and Construction of this Agreement. This Agreement is the result of arms-length bargaining bythe parties, each party was represented by legal counsel of such party’s choosing in connection with the negotiation and drafting of thisAgreement and no provision of this Agreement shall be construed against a party, due to an ambiguity therein or otherwise, by reasonof the fact that such provision may have been drafted by counsel for such party. For purposes of this Agreement: (i) the term “Person”shall mean, in addition to any natural person, a corporation, limited liability company, general or limited partnership, joint venture,trust, estate or any other entity; (ii) when used with reference to Employer, the term “Affiliate” shall mean any Person that controls, iscontrolled by or is under common control with Employer and shall include Parent and its other subsidiaries; (iii) the term “including”shall mean “including without limitation” or “including but not limited to”; (iv) the term “or” shall not be deemed to be exclusive; and(v) the terms “hereof,” “herein,” “hereinafter,” “hereunder,” and “hereto,” and any similar terms shall 12Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.refer to this Agreement as a whole and not to the particular Section, paragraph or clause in which any such term is used, unless thecontext in which any such term is used clearly indicates otherwise.(h) Governing Law. This Agreement is being entered into and will be performed in the State of California and shallbe construed under and be governed in all respects by and enforced under the laws of the State of California, without giving effect tothe conflict of laws principles of such State.(i) Headings. The Section and paragraph headings in this Agreement are inserted for convenience of reference onlyand shall not affect, nor shall be considered in connection with, the construction or application of any of the provisions of thisAgreement.(j) Counterparts. This Agreement may be executed in any number of counterparts, and each such executedcounterpart, and any photocopy or facsimile copy thereof, shall constitute an original of this Agreement; but all such executedcounterparts and photocopies and facsimile copies thereof shall, together, constitute one and the same instrument.IN WITNESS WHEREOF, this Agreement has been executed by Employer and by Executive as of the Effective Date.EMPLOYER: FIRST FOUNDATION BANK FIRST FOUNDATION INC.By: /S/ SCOTT KAVANAUGH By: /S/ SCOTT KAVANAUGHName: Scott Kavanaugh Name: Scott KavanaughTitle: Chief Executive Officer Title: Chief Executive Officer FIRST FOUNDATION ADVISORS By: /S/ JOHN HAKOPIAN Name: John Hakopian Title: President EXECUTIVE /S/ JOHN MICHEL Name: John M. Michel 13Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.FIRST AMENDMENT TO EMPLOYMENT AGREEMENTThis FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (the “First Amendment” or this “Amendment”) is made as ofDecember 28, 2012 (the “Effective Date”), by and between First Foundation Inc., a California corporation, First Foundation Advisors(“FFA”), a California corporation, First Foundation Bank, a California state chartered banking corporation (collectively the“Employer”), and John M. Michel (“Executive”), with reference to the following:RECITALSWHEREAS, Employer and Executive are parties to that certain Employment Agreement dated as of December 31, 2009 (the“Employment Agreement”); which amended and restated a certain employment agreement made as of September 17, 2007; andWHEREAS, FFB is a bank chartered by the Department of Financial Institutions of the State of California (the “DFI”) andconducts a banking business, FFA is engaged in the business of providing investment management, wealth management and advisoryservices primarily to high net worth individuals, and both FFB and FFA are wholly-owned subsidiaries of First Foundation Inc.(“Parent”), which, through its subsidiaries (collectively “Affiliates”), provides commercial banking, investment management, wealthmanagement, advisory services, trust services and other financial services to the public.WHEREAS, Employer and Executive desire to amend the Employment Agreement in the manner and to the extent set forthhereinafter.AGREEMENTNOW, THEREFORE, for good and valuable consideration, the adequacy and receipt of which is hereby acknowledged, andwith the intent to be legally bound hereby, Employer and Executive agree as follows:1. Amendment to Section 4. The second sentence of Section 4 of the Employment Agreement, entitled “Term” is hereby amendedto read in its entirety as follows:“The expiration date of the Term of the Agreement is hereby extended to December 31, 2014.”2. Amendment to Section 5(a). The first sentence of Section 5(a) of the Employment Agreement, entitled “Salary” is herebyamended to read in its entirety as follows:“For all services rendered by Executive under this Agreement, Employer shall pay Executive a salary at the annual rate ofTwo Hundred Eighty Two Thousand ($282,000), as the same may be increased in the sole discretion of the Board or itsCompensation Committee (the “Compensation Committee”), at any time or from time to time hereafter (the “Base AnnualSalary”).”3. Amendment to Section 6(f)(i). The term “OTS” in Section 6(f)(i) of the Employment Agreement, is hereby amended to read“DFI”: 14Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.4. Amendment to Section 6(f)(ii). Section 6(f)(ii) of the Employment Agreement, is hereby amended to read in its entirety asfollows:“(ii) the Director of the DFI, or his or her designee, requires this Agreement to be terminated due to (A) the entry, by theFederal Deposit Insurance Corporation (the “FDIC”) into an agreement to provide assistance to or on behalf of FFB under theauthority contained in 13(c) of the FDIA; or (B) the approval of a supervisory merger to resolve problems related to operationsof FFB; or (C) a determination by Director of the DFI that FFB is in an unsafe or unsound condition.”5. Amendment to Section 8(b)(ii). The clause “Office Thrift Supervision (“OTS”) and the Federal Deposit Insurance Corporation(the “FDIC”)” in the first sentence of Section 8(b)(ii) of the Employment Agreement, is hereby amended to “DFI and the FDIC”:IN WITNESS WHEREOF, this Amendment Agreement has been executed by Employer and by Executive as of the date firstabove written.EMPLOYER: FIRST FOUNDATION BANK FIRST FOUNDATION INC.By: /S/ SCOTT KAVANAUGH By: /S/ SCOTT KAVANAUGHName: Scott Kavanaugh Name: Scott KavanaughTitle: Chief Executive Officer Title: Chief Executive Officer FIRST FOUNDATION ADVISORS By: /S/ JOHN HAKOPIAN Name: John Hakopian Title: President EXECUTIVE /S/ JOHN MICHEL Name: John M. Michel 15Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.SECOND AMENDMENT TO EMPLOYMENT AGREEMENTThis SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (the “Second Amendment” or this “Amendment”) is madeas of August 31, 2013 (the “Effective Date”), by and between between First Foundation Inc., a California corporation, First FoundationAdvisors (“FFA”), a California corporation, First Foundation Bank, a California state chartered banking corporation (collectively the“Employer”), and John M. Michel (“Executive”), with reference to the following:RECITALSWHEREAS, Employer and Executive are parties to that certain Employment Agreement dated as of December 31, 2009 (the“Employment Agreement”); which amended and restated a certain employment agreement made as of September 17, 2007; which wassubsequently amended on December 28, 2012; andWHEREAS, FFB is a bank chartered by the Department of Business Oversight of the State of California (the “DBO”) andconducts a banking business, FFA is engaged in the business of providing investment management, wealth management and advisoryservices primarily to high net worth individuals, and both FFB and FFA are wholly-owned subsidiaries of First Foundation Inc.(“Parent”), which, through its subsidiaries (collectively “Affiliates”), provides commercial banking, investment management, wealthmanagement, advisory services, trust services and other financial services to the public.WHEREAS, Employer and Executive desire to amend the Employment Agreement in the manner and to the extent set forthhereinafter.AGREEMENTNOW, THEREFORE, for good and valuable consideration, the adequacy and receipt of which is hereby acknowledged, andwith the intent to be legally bound hereby, Employer and Executive agree as follows:6. Amendment to Section 4. The second sentence of Section 4 of the Employment Agreement, entitled “Term” is hereby amendedto read in its entirety as follows:“The expiration date of the Term of the Agreement is hereby extended to December 31, 2016.”IN WITNESS WHEREOF, this Amendment Agreement has been executed by Employer and by Executive as of the date firstabove written.EMPLOYER: FIRST FOUNDATION BANK FIRST FOUNDATION INC.By: /S/ SCOTT KAVANAUGH By: /S/ SCOTT KAVANAUGHName: Scott Kavanaugh Name: Scott KavanaughTitle: Chief Executive Officer Title: Chief Executive Officer 16Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.FIRST FOUNDATION ADVISORS By: /S/ JOHN HAKOPIAN Name: John Hakopian Title: President EXECUTIVE /S/ JOHN MICHEL Name: John M. Michel 17Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.15CHANGE OF CONTROL SEVERANCE COMPENSATION AGREEMENTThis CHANGE OF CONTROL SEVERANCE COMPENSATION AGREEMENT, dated as of September 17, 2007 (the“Agreement”), is made by and between KELLER FINANCIAL GROUP, a California corporation (the “Company”) and David O. Rahn(the “Executive”), with reference to the following facts and circumstances:R E C I T A L S:A. The Company’s Board of Directors has determined that it is appropriate and in the Company’s best interests toreinforce and encourage the continued attention and dedication of key members of the management of the Company and its materialsubsidiaries, who include the Executive, to their assigned duties without distraction in potentially disturbing circumstances that wouldarise in the event of a threatened or actual Change in Control (as hereinafter defined) of the Company or such subsidiaries and therebyalso provide the Company with greater assurance that it will be able to retain the key members of management, including Executive, inthe employ of the Company or a material subsidiary (as the case may be) in the event of any threatened or actual Change in Control;andB. This Agreement sets forth the severance compensation which the Company agrees it will pay, or if Executive’semployment is with First Foundation Bank (the “Bank”), that the Company will cause the Bank to pay, to Executive, if his or heremployment terminates under one of the circumstances described herein following a Change in Control of the Company or the Bank.C. Executive is employed as the President & Chief Operating Officer of the Bank under an Executive EmploymentAgreement of even date herewith (the “Employment Agreement”). This Change of Control Severance Compensation Agreement setsforth the rights and obligations of the Company and Executive in the event of a termination of Executive’s employment, for GoodReason (as defined below), that is attributable to, or that occurs concurrently with or within twenty-four (24) months following, aChange in Control. On the other hand, the Employment Agreement, rather than this Agreement, governs and determines the severancecompensation to which Executive would be entitled upon any other termination of Executive’s employment.NOW, THEREFORE, it is agreed as follows:1. Definitions. The following terms shall have the respective meanings ascribed to them below in this Section 1:1.1 The terms “affiliate” and “associate” shall have the respective meanings given to such terms in Rule 12b-2under the Exchange Act (even if the Company has no securities registered under that Act).1.2 The terms “beneficial ownership,” “beneficially owned” and “beneficial owner” shall have the meanings givento such terms in Rule 13d-3 under the Exchange Act (even if the Company has no securities registered under that Act).1.3 The term “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.1.4 The term “Parent” of a corporation or other entity means any person that is the beneficial owner, directly orindirectly, of a majority of the Voting Securities of that corporation or other entity. Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.1.5 The term “Voting Securities” of any person that is a corporation means the combined voting power of thatperson’s then outstanding securities having the right to vote in an election of that person’s directors. The term “Voting Securities” ofany person, other than a corporation, such as a partnership or limited liability company, shall mean the combined voting power of thatperson’s outstanding ownership interests that are entitled to vote or select the individuals (such as the managers of a limited liabilitycompany) that have substantially the same authority or decision-making powers with respect to such person that are generallyexercisable by directors of a corporation.1.6 The term “Common Stock” of the Company shall mean the shares of the Company’s common stock, par value$0.001 per share, and any voting securities into which such shares may be converted or exchanged in any merger, consolidation,reorganization or recapitalization of the Company.1.7 The term “person” shall have the meaning given to such term in Section 13(d) and Section 14(d) of theExchange Act (even if the Company has no securities registered under that Act) and, therefore, the term “person” shall include any twoor more persons acting together, whether as a partnership, limited partnership, joint venture, syndicate or other group, at least one of thepurposes of which is to acquire, hold or dispose of beneficial ownership of securities of the Company or the Bank. The term “personalso shall include any natural person, any corporation, limited liability company, general or limited partnership, joint venture, trust,estate, or unincorporated association.1.8 The term “Change in Control” of the Company shall mean the occurrence of any of the following:(a) Any person who (together with all of such person’s affiliates and associates) shall, at any time becomethe beneficial owner, directly or indirectly, of more than twenty-five percent (25%) of the Company’s Voting Securities Company,except (i) the Company or any of its subsidiaries, (ii) any trustee, fiduciary or other person or entity holding securities under anyemployee benefit plan or trust of the Company or any of its subsidiaries or (iii) Ulrich E. Keller, Jr. (collectively, the Exempt Owners”);or(b) There shall be consummated any consolidation, merger, or reorganization (as such term is defined inthe California Corporations Code), of the Company with or into another person, or of another person with or into the Company, inwhich the holders of the Company’s outstanding Voting Securities immediately prior to the consummation of such consolidation,merger or reorganization would not, immediately after such consummation, own beneficially, directly or indirectly, (in the aggregate) atleast sixty percent (60%) of the Voting Securities of (i) the continuing or surviving person in such merger, consolidation orreorganization (whether or not that is the Company) or (ii) the ultimate Parent, if any, of that continuing or surviving person; or(c) There shall be consummated any consolidation, merger or reorganization of the Bank with or intoanother person, or of another person with or into the Bank, unless the persons that were the holders of the Company’s Voting Securitiesimmediately prior to such consummation would have, immediately after such consolidation, merger or reorganization, substantially thesame proportionate direct or indirect beneficial ownership of at least sixty (60%) of the Voting Securities of (i) the continuing orsurviving person in such consolidation, merger or reorganization (whether or not that is the Bank) or, (ii) the ultimate Parent, if any, ofthat continuing or surviving person; or(d) There shall be consummated any sale, lease, exchange or other transfer (in one transaction or a seriesof transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or of theBank; provided, however, that in the case of a sale of all or substantially all of the assets of the Company or the Bank, the holders of theCompany’s 2Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.outstanding Voting Securities immediately prior to the consummation of such sale of assets would not, immediately after suchconsummation, own beneficially, directly or indirectly, (in the aggregate) at least sixty percent (60%) of the Voting Securities of(i) person acquiring such assets or (ii) the ultimate Parent, if any, of that person; or(e) The holders of the Voting Securities of the Company approve any plan or proposal for the liquidationor dissolution of the Company, unless the plan of liquidation provides for all or substantially all of the assets of the Company to betransferred to a person in which the holders of the Company’s Voting Securities immediately prior to such liquidation have or will have,immediately after such liquidation, substantially the same proportionate direct or indirect beneficial ownership of at least sixty percent(60%) of the Voting Securities of such person; or(f) During any period of two (2) consecutive years during the term of this Agreement, individuals who atthe beginning of that two year period constituted the entire Board of Directors of the Company do not, for any reason, constitute amajority thereof, unless the election (or the nomination for election) by the holders of the Company’s Voting Securities, of each directorwho was not a member of the Board of Directors at the beginning of that two year period was approved by a vote of at least two-thirdsof the directors then still in office who were directors at the beginning of the two year period.Notwithstanding the foregoing:(x) a “Change in Control” shall not be deemed to have occurred within the meaning of Paragraph 1.8(a)above solely as the result of an acquisition of Voting Securities by the Company or any subsidiary thereof that has the effect of(i) reducing the number of the Company’s outstanding Voting Securities, and (ii) as a result, increasing the beneficial ownership of theCompany’s Voting Securities by any person to more than twenty-five percent (25%) of the Company’s outstanding Voting Securities;provided, however, that, if any such person shall thereafter become the beneficial owner of any additional Voting Securities of theCompany (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directlyfrom the Company) and immediately thereafter beneficially owns more than twenty-five percent (25%) of the then outstanding VotingSecurities of the Company, then, a “Change of Control” shall be deemed to have occurred for purposes of this Agreement; and(y) a “Change in Control” shall not be deemed to have occurred within the meaning of this Section 1.8, byreason of (i) a consolidation, merger or reorganization of the Company or the Bank, (ii) a sale, lease, exchange or other transfer (in onetransaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets ofthe Company or the Bank, (iii) a change in the composition of the Board of Directors of the Company of the nature contemplated byParagraph 1.8(f) above, or (iv) the appointment of a conservator or receiver for the Bank, if such transaction, change in Boardcomposition or appointment, as the case may be, was required pursuant to an order issued by the Office of Thrift Supervision (the“OTS”), or by any other federal or state financial institution regulatory agency having jurisdiction over the Company or the Bank.1.9 The term “Employer” means whichever of the Company or Bank is the principal employer of Executive.1.10 The term “Code” means the Internal Revenue Code of 1986, as amended, and any successor statute thereto. 3Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.2. Term. The term of this Agreement shall commence on the date hereof and, subject to earlier termination pursuant toSection 6 hereof, shall end three (3) years following the date on which notice of non-renewal or termination of this Agreement is givenby either the Company or Executive to the other. Thus, this Agreement shall renew automatically on a daily basis so that theoutstanding term is always three (3) years following any effective notice of non-renewal or of termination given by the Company orExecutive, other than in the event of a termination pursuant to Section 6 hereof.3. Change in Control. No compensation shall be payable under this Agreement unless and until (i) there has been aChange in Control of the Company (as hereinafter defined) while the Executive is still an officer of the Company or the Bank, and(ii) the Executive’s employment by the Company or the Bank terminates under any of the circumstances or for any of the reasons setforth in Section 4 below.4. Termination by Executive for Good Reason. If (i) a Change in Control of the Company occurs while the Executive isstill employed as an officer of the Company or the Bank or the surviving or continuing person in any such Change in Control, and(ii) any of the following events (each a “Good Reason Event”) shall occur (that is not consented to by Executive) as a result or at thetime or within 12 months of the consummation of such Change in Control, then, Executive shall be entitled to the compensationprovided in Section 5 of this Agreement, provided that he gives the Company written notice of the termination of his/her employmentand of all positions he/she may have with the Company and the Bank for “Good Reason” within forty-five (45) days following theoccurrence of any such Good Reason Event.4.1 Reduction or Adverse Change of Responsibilities, Authority, Etc. The scope of Executive’s authority orresponsibilities is significantly reduced or diminished or there is an change in Executive’s position or title as an officer of the Companyor the Bank, or both, that constitutes or would generally be considered to constitute a demotion of Executive, unless such reduction,diminution or change is made as a consequence of (i) Executive’ disability (determined as provided in Section 6(e) of the EmploymentAgreement), or (ii) any acts or omissions of Executive which would entitle the Company or Bank to terminate Executive’s employmentfor Cause (as defined in Section 6(a) of the Employment Agreement); or4.2 Reduction in Base Salary. Executive’s Base Annual Salary (as defined in his Employment Agreement and as ineffect immediately prior to the consummation of the Change in Control) is reduced, unless such reduction is made (i) as part of anacross-the-board cost cutting measure that is applied equally or proportionately to all senior executives of the Employer, or (ii) as aresult of Executive’s Disability (determined as provided in Section 6(e) of the Employment Agreement), or any acts or omissions ofExecutive which would entitle Employer to terminate Executive’s employment for Cause (as defined in Section 6(a) of the EmploymentAgreement);4.3 Discontinuance or Reduction of Bonus Opportunity Under Bonus Compensation Plan. Executive’s bonusand/or incentive compensation award opportunity under any incentive or bonus compensation plan or program in which he isparticipating immediately prior to the consummation of the Change of Control is discontinued or significantly reduced, unless suchdiscontinuance or reduction (i) is expressly permitted under the terms of such plan or program, or (ii) is a result of a policy of Employerapplied equally or proportionately to all senior executives of Employer participating in such plan or program, or (iii) is the result of thereplacement of such plan or program with another bonus or incentive compensation plan in which Executive is afforded substantiallycomparable bonus or incentive compensation opportunities;4.4 Discontinuance of Participation in Employee Benefit Plans. Executive’s participation in any other benefit planmaintained by the Company or Employer in which Executive was 4Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.participating immediately prior to the consummation of the Change of Control (including any vacation program) is terminated or thebenefits that had been afforded under any such benefit plan are significantly reduced, unless such discontinuance or reduction (as thecase may be) is (i) expressly permitted by the terms of that plan or program, or (ii) due to a change in applicable law or the loss orreduction in the tax deductibility to Employer of the contributions to or payments made under such plan, or (iii) the result of a policy ofEmployer or the Company that is applied equally or proportionately to all senior executives participating in such benefit plan, or (iv) theresult of the adoption of one or more other benefit plans providing reasonably comparable benefits (in terms of value) to Executive; or4.5 Relocation. The relocation of Executive to an office that located more than thirty (30) miles from Executive’sprincipal office location prior to the consummation of the Change of Control or to an office that is not the headquarters office ofExecutive’s employer (other than for temporary assignments or required travel in connection with the performance by Executive ofhis/her duties for Employer or the Company); or4.6 Breach of Agreements. A breach by the Company or Employer of any of its material obligations to Executiveunder the Employment Agreement or this Agreement which continues uncured for a period of thirty (30) days following written noticethereof from Executive.5. Severance Compensation upon Termination of Employment for Good Reason. Subject to Section 5.4 and Section 7below, upon a termination of Executive’s employment by Executive pursuant to Section 4 hereof (a “Good Reason Termination”), then:5.1 Change of Control Severance Compensation. Subject to Section 5.4 below, in lieu of any further salary andbonus payments or other payments that would otherwise be due to Executive under the Employment Agreement, or otherwise, forperiods subsequent to the date of such Good Reason Termination, Executive shall become entitled to receive the following severancecompensation and benefits:(a) Employer shall pay the Executive all amounts owed through the date of Executive’s Good ReasonTermination; and(b) Employer also shall pay to Executive, at the applicable time set forth in Section 5.3, an amount equalto the product of two (2) times the sum of (i) Executive’s Base Annual Salary in effect as of the date of termination and (ii) an amountequal to the Maximum Bonus Award (as hereinafter defined) payable to Executive under any incentive or bonus compensation plan inwhich he/she was participating at the time of such termination of employment, which amount shall be paid as provided in Section 5.3hereof. For purposes hereof, the term “Maximum Bonus Award” shall mean the amount of the bonus compensation that would be paidto Executive under such incentive or bonus compensation plan assuming that all performance goals or targets required to have beenachieved as a condition of the payment of the maximum bonus under such plan were achieved and all other conditions precedent to thepayment of such bonus compensation were satisfied.(c) All options to purchase stock of the Company granted to the Executive that had not vested as of thedate of such Good Reason Termination shall vest effective immediately prior to such termination.(d) All restricted stock awards, restricted stock unit awards, and other forms of equity-based compensationawards granted to the Executive, which had not vested as of the date of such Good Reason Termination, shall vest effectiveimmediately prior to such termination. 5Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(e) The Company or the Bank shall maintain in full force and effect, during the period commencing on thedate of such Good Reason Termination and ending on the December 31 of the second calendar year following the calendar year inwhich such termination occurred (the “Benefit Continuation Period”), all employee medical, dental and vision plans and programs,disability plans and programs and all life insurance programs in which the Executive and/or his/her family members were entitled toparticipate or under which they were entitled to receive benefits immediately prior to the date of the occurrence of the Good ReasonEvent, provided, however, that if such continued participation is prohibited under the general terms and provisions of such plans andprograms, then, the Company or the Bank shall, at its expense, arrange for substantially equivalent benefits to be provided to Executiveand/or his/her family members during the Benefit Continuation Period. Notwithstanding the foregoing, however, there shall only beincluded as benefits to which Executive and/or his/her family members shall be entitled under this Paragraph 5.1(e), and Executiveand/or such family members shall only be entitled to, those benefits if the plans or programs in which Executive or his/her familymembers were participating immediately prior to the occurrence of the Good Reason Event were exempt from the term “nonqualifieddeferred compensation plan” under Section 409A of the Code.Notwithstanding any other provision in this Agreement to the contrary, under no circumstances, shall the Executive bepermitted to exercise any discretion to modify the vesting of an award or the amount, timing or form of payment or benefit described inthis Section 5.1.5.2 Timing and Manner of Payment. The amount that becomes payable to Executive pursuant to Section 5.1(b)above shall be paid as follows:(a) If, on the date that the Executive terminates his/her employment for Good Reason pursuant toSection 4 above, the Company is a reporting company under the Exchange Act, then Executive will be entitled to receive such paymentin a single lump sum on the first business day that occurs at the end of the period commencing on the date of that termination andending six months after the last day of the calendar month in which the date of termination occurred (e.g., if Executive were toterminate his/her employment for Good Reason on March 15, 2008, for example, then Employer would be required to pay the amountspecified in Section 5.1(b) on the first business day immediately following September 30, 2008); or(b) If, however, the Company is not a reporting company under the Exchange Act at the time theExecutive terminates his/her employment for Good Reason pursuant to Section 4 above, then Executive shall be entitled to receive suchpayment in a single lump sum on the fifth (5th) business day following such termination of employment.5.3 No Requirement of Mitigation. The Executive shall not be required to mitigate the amount of any payment orbenefit provided for in this Section 5 by seeking other employment or otherwise, nor shall any compensation or other paymentsreceived by the Executive from other persons after the date of termination reduce any payments due under this Section 5.5.4 Limitation.(a) Anything in this Agreement to the contrary notwithstanding, if any compensation, payment, benefit ordistribution by the Company or Employer Bank to or for the benefit of Executive, whether paid or payable or distributed or distributablepursuant to the terms of this Agreement or otherwise (collectively, the “Severance Payments”), would be subject to the excise taximposed by Section 4999 of the Code, then, the following provisions shall apply: 6Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(i) If the Threshold Amount (as hereinafter defined) is less than (x) the Severance Payments, butgreater than (y) the Severance Payments reduced by the-sum of (A) the Excise Tax (as defined below) and (B) the total of the Federal,state, and local income and employment taxes on the amount of the Severance Payments which are in excess of the Threshold Amount,then the Severance Payments that would otherwise be payable under this Agreement shall be reduced (but not below zero) to the extentnecessary so that the maximum Severance Payments shall not exceed the Threshold Amount. To the extent that there is more than onemethod of reducing the Severance Payments to bring them within the Threshold Amount, Executive shall determine which method shallbe followed; provided that if Executive fails to make such determination within 45 days after the Company has sent Executive writtennotice of the need for such reduction, the Company may determine the amount of such reduction in its sole discretion.(ii) If, however, the Severance Payments, reduced by the sum of (A) the Excise Tax and (B) thetotal of the Federal, state and local income and employment taxes payable by Executive on the amount of the Severance Paymentswhich are in excess of the Threshold Amount, are greater than or equal to the Threshold Amount, there shall be no reduction in theSeverance Payments to Executive pursuant to Paragraph 5.4(a)(i) above.(b) For the purposes of this Section 5.4, the term “Threshold Amount” shall mean three (3) timesExecutive’s “base amount” (within the meaning of Section 280G(b)(3) of the Code and the regulations promulgated thereunder) lessone dollar ($1.00); and the term “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code, and any interest orpenalties incurred by Executive with respect to such excise tax.(c) The determination as to which of Paragraph 5.4(a)(i) or 5.4(a)(ii) shall apply to Executive shall bemade by Vavrinek, Trine, day & Co, LLP, independent registered public accountants, or any other independent accounting firmselected by mutual agreement of the Company and Executive (the “Accounting Firm”), which agreement shall not be unreasonablywithheld or delayed by either party. Such Accounting Firm shall provide detailed supporting calculations both to the Company andExecutive within 15 business days of the date of Executive’s Good Reason Termination, if applicable, or at such earlier time as isreasonably requested by the Company or Executive. For purposes of determining which of the alternative provisions of 5.4(a)(i) or5.4(a)(ii) shall apply, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxationapplicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highestmarginal rates of individual taxation in the state and locality of Executive’s residence on the Termination Date, net of the maximumreduction in federal income taxes which could be obtained from deduction of such state and local taxes. Any determination by theAccounting Firm shall be binding on the Company and Executive.5.5 Withholding. Notwithstanding anything to the contrary that may be contained elsewhere in this Agreement, allpayments made to Executive under this Agreement shall be made net of all taxes and other amounts required to be withheld from thewages or salary of employees under applicable federal, state or local laws or regulations.6. Termination of Agreement. Notwithstanding Section 2 hereof, this Agreement shall terminate sooner as provided in thisSection 6.6.1 Termination of Employment Other Than for Good Reason. This Agreement shall terminate upon the happening,at any time prior to the termination of Executive’s employment for Good Reason pursuant to Section 4 hereof, of any of the followingevents: 7Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(a) Executive’s Disability or Death. This Agreement shall terminate upon the termination of Executive’semployment as a result of Executive’s disability pursuant to and in accordance with Section 6(e) of the Employment Agreement. ThisAgreement also shall terminate immediately in the event of the death of the Executive.(b) Retirement. This Agreement shall terminate automatically on Retirement (as hereinafter defined) ofExecutive. The term “Retirement” as used in this Agreement shall mean termination by the Company or the Executive of Executive’semployment based on the Executive’s having reached age 75 or such other age as shall have been fixed in any arrangement establishedwith the Executive’s consent with respect to Executive retirement.(c) Cause. This Agreement shall terminate, if Executive’s employment with the Company or an EmployerBank is terminated for Cause, as such term is defined in Section 6(a) of the Employment Agreement.(d) Termination by Executive without Cause. This Agreement shall terminate upon any voluntarytermination by Executive of his/her employment with the Company or the Bank, as the case may be, other than pursuant to Section 4 ofthis Agreement.In the event of a termination of this Agreement pursuant to this Section 6.1, then, notwithstanding anything to thecontrary that may be contained elsewhere herein, except for any severance or other compensation to which Executive may be entitled,by reason of such termination, under the Employment Agreement, neither the Company nor the Bank shall have any liability toExecutive, or Executive’s estate, heirs, successors, representatives or assigns, due to such termination of this Agreement or by reason ofany prior or subsequent Change in Control of the Company.6.2 Effect of Good Reason Termination on Term of this Agreement. In the event of a Good Reason Terminationpursuant to Section 4 hereof, Executive shall have no further rights or remedies under this Agreement, except his/her right to receive theseverance compensation set forth in Section 5 hereof attributable to the occurrence of the Good Reason Event that entitled Executive toterminate his/her employment pursuant to Section 4 hereof. Accordingly, but without limiting the generality of the foregoing, Executiveshall be entitled to receive any compensation under this Agreement in the event of the occurrence of a second Change in Control of theCompany after the date of the Executive’s Good Reason Termination.7. Release of Claims. The obligations of the Company under this Agreement shall constitute the only obligations of theCompany arising from a Good Reason Termination by Executive pursuant to Section 4 hereof. Additionally, upon any suchtermination, except for Executive’s rights and the obligations of the Company or the Bank (as the case may be) under Section 5 hereof,none of the Company, the Bank or any of their affiliates shall have any obligation or liability of any kind or nature whatsoever toExecutive by reason of or arising out of his/her employment with the Company or the Bank or the termination thereof. Executivefurther agrees that, except for his/her rights and the obligations of the Company or the Bank (as the case may be) under Section 5hereof, all demands, claims and causes of action that Executive may have against, and any and all rights that Executive may have torecover any payments, damages, liabilities or other amounts of any kind or nature whatsoever from, the Company, the Bank or any oftheir affiliates , or any of their respective, officers, directors, shareholders, employees, agents or independent contractors (the“Company Related Parties”), shall be forever released by Executive as a condition precedent to Executive’s rights to receive and theobligations of the Company or Bank (as the case may be) to pay or provide to Executive the severance compensation and benefitsprovided for in Section 5 hereof, irrespective of whether or not such demands, claims, causes of action or rights arise or have arisenunder (i) this Agreement, the Employment Agreement, or any other contract, 8Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.agreement or understanding, written or oral, between Executive and the Company or any of the Company Related Parties, or (ii) anyemployee or executive benefit plans or programs, including any stock incentive or stock based compensation plans, or (iii) any federal,state or local statutes or government regulations, or otherwise, and whether or not such demands, claims, causes of action or rights areknown or unknown, certain or uncertain, or suspected or unsuspected by Executive. Executive further covenants and agrees that suchcondition precedent shall not be satisfied unless and until he/she executes and delivers to the Company all appropriate writtenagreements reflecting such settlement and complete release in a form reasonably acceptable to the Company.9. Arbitration of Disputes. Except as otherwise provided in the last sentence of this Section 9 with respect to equitableproceedings and remedies, any controversy or claim arising out of or relating to this Agreement, the performance or non-performance(actual or alleged) by either party of any of such party’s respective obligations hereunder or any actual or alleged breach thereof, shall,to the fullest extent permitted by law, be resolved exclusively by binding arbitration in any forum and form agreed upon by the partiesor, in the absence of such an agreement, under the auspices of the American Arbitration Association (“AAA”) in Orange County,California in accordance with the Employment Dispute Resolution Rules of the AAA, including, but not limited to, the rules andprocedures applicable to the selection of arbitrators. In the event that any person, other than Executive or the Company, may be a partywith regard to any such controversy or claim, such controversy or claim shall be submitted to arbitration subject to such other person’sagreement thereto. Judgment upon the award rendered by the arbitrator in any such arbitration proceeding may be entered in any courthaving jurisdiction thereof. This Section 9 shall be specifically enforceable. The reasonable fees and disbursements of the prevailingparty’s legal counsel, accountants and experts incurred in connection with any such arbitration proceeding shall be paid by the non-prevailing party in such arbitration proceeding. Notwithstanding anything to the contrary that may be contained in this Section 9,however, each party shall be entitled to bring an action in any court of competent jurisdiction for the purpose of obtaining a temporaryrestraining order or a preliminary or permanent injunction or other equitable remedies in circumstances in which such relief isappropriate.10. Miscellaneous.10.1 Entire Agreement. This Agreement constitutes the entire agreement between the parties relating to the subjectmatter hereof and supersedes all prior agreements and understandings, whether written or oral, between the parties with respect to thatsubject matter.10.2 Assignment; Successors and Assigns, etc. Neither party may make any assignment, in whole or in part, of thisAgreement or any interest herein, by operation of law or otherwise, or delegate any of their respective duties hereunder, without theprior written consent of the other party; except that in the event of a Change in Control of the Company, the rights and obligations ofthe Company under this Agreement may be assigned to the successor-in-interest of the Company in such Change in Control without theconsent of Executive, provided that (i) such successor-in-interest enters into a written agreement, in a form reasonably acceptable toExecutive, by which such successor-in-interest shall expressly agree to be bound by this Agreement and (ii) no such assignment shallrelieve the Company of its obligations under this Agreement. Subject to the foregoing restrictions on assignment, this Agreement shallinure to the benefit of and be enforceable by and shall be binding on the parties and their respective successors, legal representatives,executors, administrators, heirs, devisees and legatees, and permitted assigns. If Executive should die while any amounts are stillpayable to him/her pursuant to Section 5 hereof, all such amounts, unless otherwise provided herein, shall be paid in accordance withthe terms of this Agreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’sestate. 9Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.10.3 Severability. If any portion or provision of this Agreement (including, without limitation, any portion orprovision of any section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction,then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it isso declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid andenforceable to the fullest extent permitted by law.10.4 Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by thewaiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by anyparty of any right or obligation under or breach of this Agreement, shall not prevent any subsequent enforcement of such term, right orobligation or be deemed a waiver of any prior or subsequent breach of the same obligation.10.5 Notices. Any notices, requests, demands and other communications provided for by this Agreement(“Notices”) shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service or byregistered or certified mail, postage prepaid, return receipt requested, to Executive at the last address Executive has filed in writing withEmployer or, in the case of any Notice to be given to the Company or the Employer (if other than the Company), at its headquartersoffices, attention of the Chief Executive Officer, and shall be effective on the date of delivery in person or by courier or two(2) business days after the date such Notice is mailed by registered or certified mail, postage prepaid and return receipt requested(whether or not the requested receipt is returned).10.6 Amendment. This Agreement may be amended or modified only by a written instrument signed by theExecutive and by a duly authorized officer or other representative of the Company.10.7 Interpretation and Construction of this Agreement. This Agreement is the result of arms-length bargaining bythe parties, each party was represented by legal counsel of such party’s choosing in connection with the negotiation and drafting of thisAgreement and no provision of this Agreement shall be construed against a party, due to an ambiguity therein or otherwise, by reasonof the fact that such provision may have been drafted by counsel for such party. For purposes of this Agreement: (i) the term“including” shall mean “including without limitation” or “including but not limited to”; (iv) the term “or” shall not be deemed to beexclusive; and (v) the terms “hereof,” “herein,” “hereinafter,” “hereunder,” and “hereto,” and any similar terms shall refer to thisAgreement as a whole and not to the particular Section, paragraph or clause in which any such term is used, unless the context in whichany such term is used clearly indicates otherwise.10.8 Governing Law. This Agreement is being entered into and will be performed in the State of California andshall be construed under and be governed in all respects by and enforced under the laws of the State of California, without giving effectto its conflict of laws rules or principles.10.9 Headings. The Section and paragraph headings in this Agreement are inserted for convenience of referenceonly and shall not affect, nor shall be considered in connection with, the construction or application of any of the provisions of thisAgreement.10.10 Counterparts. This Agreement may be executed in any number of counterparts, and each such executedcounterpart, and any photocopy or facsimile copy thereof, shall constitute an original of this Agreement; but all such executedcounterparts and photocopies and facsimile copies thereof shall, together, constitute one and the same instrument. 10Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. “Company” “Executive”KELLER FINANCIAL GROUP By: /S/ ULRICH E. KELLER, JR. /S/ DAVID O. RAHNName: Ulrich E. Keller, Jr. Name: David O. RahnTitle: Chairman & CEO “Bank” FIRST FOUNDATION BANK By: /S/ SCOTT F. KAVANAUGH Name: Scott F. Kavanaugh Title: Chairman & CEO 11Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.16CHANGE OF CONTROL SEVERANCE COMPENSATION AGREEMENTThis CHANGE OF CONTROL SEVERANCE COMPENSATION AGREEMENT, dated as of September 17, 2007 (the“Agreement”), is made by and between KELLER FINANCIAL GROUP, a California corporation (the “Company”) and John M. Michel(the “Executive”), with reference to the following facts and circumstances:R E C I T A L S:A. The Company’s Board of Directors has determined that it is appropriate and in the Company’s best interests toreinforce and encourage the continued attention and dedication of key members of the management of the Company and its materialsubsidiaries, who include the Executive, to their assigned duties without distraction in potentially disturbing circumstances that wouldarise in the event of a threatened or actual Change in Control (as hereinafter defined) of the Company or such subsidiaries and therebyalso provide the Company with greater assurance that it will be able to retain the key members of management, including Executive, inthe employ of the Company or a material subsidiary (as the case may be) in the event of any threatened or actual Change in Control;andB. This Agreement sets forth the severance compensation which the Company agrees it will pay, or if Executive’semployment is with First Foundation Bank (the “Bank”), that the Company will cause the Bank to pay, to Executive, if his or heremployment terminates under one of the circumstances described herein following a Change in Control of the Company or the Bank.C. Executive is employed as the Executive Vice President & Chief Financial Officer of the Bank under an ExecutiveEmployment Agreement of even date herewith (the “Employment Agreement”). This Change of Control Severance CompensationAgreement sets forth the rights and obligations of the Company and Executive in the event of a termination of Executive’s employment,for Good Reason (as defined below), that is attributable to, or that occurs concurrently with or within twenty-four (24) monthsfollowing, a Change in Control. On the other hand, the Employment Agreement, rather than this Agreement, governs and determinesthe severance compensation to which Executive would be entitled upon any other termination of Executive’s employment.NOW, THEREFORE, it is agreed as follows:1. Definitions. The following terms shall have the respective meanings ascribed to them below in this Section 1:1.1 The terms “affiliate” and “associate” shall have the respective meanings given to such terms in Rule 12b-2under the Exchange Act (even if the Company has no securities registered under that Act).1.2 The terms “beneficial ownership,” “beneficially owned” and “beneficial owner” shall have the meanings givento such terms in Rule 13d-3 under the Exchange Act (even if the Company has no securities registered under that Act).1.3 The term “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.1.4 The term “Parent” of a corporation or other entity means any person that is the beneficial owner, directly orindirectly, of a majority of the Voting Securities of that corporation or other entity. Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.1.5 The term “Voting Securities” of any person that is a corporation means the combined voting power of thatperson’s then outstanding securities having the right to vote in an election of that person’s directors. The term “Voting Securities” ofany person, other than a corporation, such as a partnership or limited liability company, shall mean the combined voting power of thatperson’s outstanding ownership interests that are entitled to vote or select the individuals (such as the managers of a limited liabilitycompany) that have substantially the same authority or decision-making powers with respect to such person that are generallyexercisable by directors of a corporation.1.6 The term “Common Stock” of the Company shall mean the shares of the Company’s common stock, par value$0.001 per share, and any voting securities into which such shares may be converted or exchanged in any merger, consolidation,reorganization or recapitalization of the Company.1.7 The term “person” shall have the meaning given to such term in Section 13(d) and Section 14(d) of theExchange Act (even if the Company has no securities registered under that Act) and, therefore, the term “person” shall include any twoor more persons acting together, whether as a partnership, limited partnership, joint venture, syndicate or other group, at least one of thepurposes of which is to acquire, hold or dispose of beneficial ownership of securities of the Company or the Bank. The term “personalso shall include any natural person, any corporation, limited liability company, general or limited partnership, joint venture, trust,estate, or unincorporated association.1.8 The term “Change in Control” of the Company shall mean the occurrence of any of the following:(a) Any person who (together with all of such person’s affiliates and associates) shall, at any time becomethe beneficial owner, directly or indirectly, of more than twenty-five percent (25%) of the Company’s Voting Securities Company,except (i) the Company or any of its subsidiaries, (ii) any trustee, fiduciary or other person or entity holding securities under anyemployee benefit plan or trust of the Company or any of its subsidiaries or (iii) Ulrich E. Keller, Jr. (collectively, the Exempt Owners”);or(b) There shall be consummated any consolidation, merger, or reorganization (as such term is defined inthe California Corporations Code), of the Company with or into another person, or of another person with or into the Company, inwhich the holders of the Company’s outstanding Voting Securities immediately prior to the consummation of such consolidation,merger or reorganization would not, immediately after such consummation, own beneficially, directly or indirectly, (in the aggregate) atleast sixty percent (60%) of the Voting Securities of (i) the continuing or surviving person in such merger, consolidation orreorganization (whether or not that is the Company) or (ii) the ultimate Parent, if any, of that continuing or surviving person; or(c) There shall be consummated any consolidation, merger or reorganization of the Bank with or intoanother person, or of another person with or into the Bank, unless the persons that were the holders of the Company’s Voting Securitiesimmediately prior to such consummation would have, immediately after such consolidation, merger or reorganization, substantially thesame proportionate direct or indirect beneficial ownership of at least sixty (60%) of the Voting Securities of (i) the continuing orsurviving person in such consolidation, merger or reorganization (whether or not that is the Bank) or, (ii) the ultimate Parent, if any, ofthat continuing or surviving person; or(d) There shall be consummated any sale, lease, exchange or other transfer (in one transaction or a seriesof transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or of theBank; provided, however, that in the case of a sale of all or substantially all of the assets of the Company or the Bank, the holders of theCompany’s 2Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.outstanding Voting Securities immediately prior to the consummation of such sale of assets would not, immediately after suchconsummation, own beneficially, directly or indirectly, (in the aggregate) at least sixty percent (60%) of the Voting Securities of(i) person acquiring such assets or (ii) the ultimate Parent, if any, of that person; or(e) The holders of the Voting Securities of the Company approve any plan or proposal for the liquidation ordissolution of the Company, unless the plan of liquidation provides for all or substantially all of the assets of the Company to betransferred to a person in which the holders of the Company’s Voting Securities immediately prior to such liquidation have or will have,immediately after such liquidation, substantially the same proportionate direct or indirect beneficial ownership of at least sixty percent(60%) of the Voting Securities of such person; or(f) During any period of two (2) consecutive years during the term of this Agreement, individuals who at thebeginning of that two year period constituted the entire Board of Directors of the Company do not, for any reason, constitute a majoritythereof, unless the election (or the nomination for election) by the holders of the Company’s Voting Securities, of each director whowas not a member of the Board of Directors at the beginning of that two year period was approved by a vote of at least two-thirds of thedirectors then still in office who were directors at the beginning of the two year period.Notwithstanding the foregoing:(x) a “Change in Control” shall not be deemed to have occurred within the meaning of Paragraph 1.8(a) abovesolely as the result of an acquisition of Voting Securities by the Company or any subsidiary thereof that has the effect of (i) reducing thenumber of the Company’s outstanding Voting Securities, and (ii) as a result, increasing the beneficial ownership of the Company’sVoting Securities by any person to more than twenty-five percent (25%) of the Company’s outstanding Voting Securities; provided,however, that, if any such person shall thereafter become the beneficial owner of any additional Voting Securities of the Company(other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from theCompany) and immediately thereafter beneficially owns more than twenty-five percent (25%) of the then outstanding Voting Securitiesof the Company, then, a “Change of Control” shall be deemed to have occurred for purposes of this Agreement; and(y) a “Change in Control” shall not be deemed to have occurred within the meaning of this Section 1.8, by reasonof (i) a consolidation, merger or reorganization of the Company or the Bank, (ii) a sale, lease, exchange or other transfer (in onetransaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets ofthe Company or the Bank, (iii) a change in the composition of the Board of Directors of the Company of the nature contemplated byParagraph 1.8(f) above, or (iv) the appointment of a conservator or receiver for the Bank, if such transaction, change in Boardcomposition or appointment, as the case may be, was required pursuant to an order issued by the Office of Thrift Supervision (the“OTS”), or by any other federal or state financial institution regulatory agency having jurisdiction over the Company or the Bank.1.9 The term “Employer” means whichever of the Company or Bank is the principal employer of Executive.1.10 The term “Code” means the Internal Revenue Code of 1986, as amended, and any successor statute thereto. 3Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.2. Term. The term of this Agreement shall commence on the date hereof and, subject to earlier termination pursuant toSection 6 hereof, shall end three (3) years following the date on which notice of non-renewal or termination of this Agreement is givenby either the Company or Executive to the other. Thus, this Agreement shall renew automatically on a daily basis so that theoutstanding term is always three (3) years following any effective notice of non-renewal or of termination given by the Company orExecutive, other than in the event of a termination pursuant to Section 6 hereof.3. Change in Control. No compensation shall be payable under this Agreement unless and until (i) there has been aChange in Control of the Company (as hereinafter defined) while the Executive is still an officer of the Company or the Bank, and(ii) the Executive’s employment by the Company or the Bank terminates under any of the circumstances or for any of the reasons setforth in Section 4 below.4. Termination by Executive for Good Reason. If (i) a Change in Control of the Company occurs while the Executive isstill employed as an officer of the Company or the Bank or the surviving or continuing person in any such Change in Control, and(ii) any of the following events (each a “Good Reason Event”) shall occur (that is not consented to by Executive) as a result or at thetime or within 12 months of the consummation of such Change in Control, then, Executive shall be entitled to the compensationprovided in Section 5 of this Agreement, provided that he gives the Company written notice of the termination of his/her employmentand of all positions he/she may have with the Company and the Bank for “Good Reason” within forty-five (45) days following theoccurrence of any such Good Reason Event.4.1 Reduction or Adverse Change of Responsibilities, Authority, Etc. The scope of Executive’s authority orresponsibilities is significantly reduced or diminished or there is an change in Executive’s position or title as an officer of the Companyor the Bank, or both, that constitutes or would generally be considered to constitute a demotion of Executive, unless such reduction,diminution or change is made as a consequence of (i) Executive’ disability (determined as provided in Section 6(e) of the EmploymentAgreement), or (ii) any acts or omissions of Executive which would entitle the Company or Bank to terminate Executive’s employmentfor Cause (as defined in Section 6(a) of the Employment Agreement); or4.2 Reduction in Base Salary. Executive’s Base Annual Salary (as defined in his Employment Agreement and as ineffect immediately prior to the consummation of the Change in Control) is reduced, unless such reduction is made (i) as part of anacross-the-board cost cutting measure that is applied equally or proportionately to all senior executives of the Employer, or (ii) as aresult of Executive’s Disability (determined as provided in Section 6(e) of the Employment Agreement), or any acts or omissions ofExecutive which would entitle Employer to terminate Executive’s employment for Cause (as defined in Section 6(a) of the EmploymentAgreement);4.3 Discontinuance or Reduction of Bonus Opportunity Under Bonus Compensation Plan. Executive’s bonusand/or incentive compensation award opportunity under any incentive or bonus compensation plan or program in which he isparticipating immediately prior to the consummation of the Change of Control is discontinued or significantly reduced, unless suchdiscontinuance or reduction (i) is expressly permitted under the terms of such plan or program, or (ii) is a result of a policy of Employerapplied equally or proportionately to all senior executives of Employer participating in such plan or program, or (iii) is the result of thereplacement of such plan or program with another bonus or incentive compensation plan in which Executive is afforded substantiallycomparable bonus or incentive compensation opportunities;4.4 Discontinuance of Participation in Employee Benefit Plans. Executive’s participation in any other benefit planmaintained by the Company or Employer in which Executive was 4Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.participating immediately prior to the consummation of the Change of Control (including any vacation program) is terminated or thebenefits that had been afforded under any such benefit plan are significantly reduced, unless such discontinuance or reduction (as thecase may be) is (i) expressly permitted by the terms of that plan or program, or (ii) due to a change in applicable law or the loss orreduction in the tax deductibility to Employer of the contributions to or payments made under such plan, or (iii) the result of a policy ofEmployer or the Company that is applied equally or proportionately to all senior executives participating in such benefit plan, or (iv) theresult of the adoption of one or more other benefit plans providing reasonably comparable benefits (in terms of value) to Executive; or4.5 Relocation. The relocation of Executive to an office that located more than thirty (30) miles from Executive’sprincipal office location prior to the consummation of the Change of Control or to an office that is not the headquarters office ofExecutive’s employer (other than for temporary assignments or required travel in connection with the performance by Executive ofhis/her duties for Employer or the Company); or4.6 Breach of Agreements. A breach by the Company or Employer of any of its material obligations to Executiveunder the Employment Agreement or this Agreement which continues uncured for a period of thirty (30) days following written noticethereof from Executive.5. Severance Compensation upon Termination of Employment for Good Reason. Subject to Section 5.4 and Section 7below, upon a termination of Executive’s employment by Executive pursuant to Section 4 hereof (a “Good Reason Termination”), then:5.1 Change of Control Severance Compensation. Subject to Section 5.4 below, in lieu of any further salary andbonus payments or other payments that would otherwise be due to Executive under the Employment Agreement, or otherwise, forperiods subsequent to the date of such Good Reason Termination, Executive shall become entitled to receive the following severancecompensation and benefits:(a) Employer shall pay the Executive all amounts owed through the date of Executive’s Good ReasonTermination; and(b) Employer also shall pay to Executive, at the applicable time set forth in Section 5.3, an amount equalto the product of two (2) times the sum of (i) Executive’s Base Annual Salary in effect as of the date of termination and (ii) an amountequal to the Maximum Bonus Award (as hereinafter defined) payable to Executive under any incentive or bonus compensation plan inwhich he/she was participating at the time of such termination of employment, which amount shall be paid as provided in Section 5.3hereof. For purposes hereof, the term “Maximum Bonus Award” shall mean the amount of the bonus compensation that would be paidto Executive under such incentive or bonus compensation plan assuming that all performance goals or targets required to have beenachieved as a condition of the payment of the maximum bonus under such plan were achieved and all other conditions precedent to thepayment of such bonus compensation were satisfied.(c) All options to purchase stock of the Company granted to the Executive that had not vested as of thedate of such Good Reason Termination shall vest effective immediately prior to such termination.(d) All restricted stock awards, restricted stock unit awards, and other forms of equity-based compensationawards granted to the Executive, which had not vested as of the date of such Good Reason Termination, shall vest effectiveimmediately prior to such termination. 5Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(e) The Company or the Bank shall maintain in full force and effect, during the period commencing on thedate of such Good Reason Termination and ending on the December 31 of the second calendar year following the calendar year inwhich such termination occurred (the “Benefit Continuation Period”), all employee medical, dental and vision plans and programs,disability plans and programs and all life insurance programs in which the Executive and/or his/her family members were entitled toparticipate or under which they were entitled to receive benefits immediately prior to the date of the occurrence of the Good ReasonEvent, provided, however, that if such continued participation is prohibited under the general terms and provisions of such plans andprograms, then, the Company or the Bank shall, at its expense, arrange for substantially equivalent benefits to be provided to Executiveand/or his/her family members during the Benefit Continuation Period. Notwithstanding the foregoing, however, there shall only beincluded as benefits to which Executive and/or his/her family members shall be entitled under this Paragraph 5.1(e), and Executiveand/or such family members shall only be entitled to, those benefits if the plans or programs in which Executive or his/her familymembers were participating immediately prior to the occurrence of the Good Reason Event were exempt from the term “nonqualifieddeferred compensation plan” under Section 409A of the Code.Notwithstanding any other provision in this Agreement to the contrary, under no circumstances, shall the Executive bepermitted to exercise any discretion to modify the vesting of an award or the amount, timing or form of payment or benefit described inthis Section 5.1.5.2 Timing and Manner of Payment. The amount that becomes payable to Executive pursuant to Section 5.1(b)above shall be paid as follows:(a) If, on the date that the Executive terminates his/her employment for Good Reason pursuant toSection 4 above, the Company is a reporting company under the Exchange Act, then Executive will be entitled to receive such paymentin a single lump sum on the first business day that occurs at the end of the period commencing on the date of that termination andending six months after the last day of the calendar month in which the date of termination occurred (e.g., if Executive were toterminate his/her employment for Good Reason on March 15, 2008, for example, then Employer would be required to pay the amountspecified in Section 5.1(b) on the first business day immediately following September 30, 2008); or(b) If, however, the Company is not a reporting company under the Exchange Act at the time theExecutive terminates his/her employment for Good Reason pursuant to Section 4 above, then Executive shall be entitled to receive suchpayment in a single lump sum on the fifth (5th) business day following such termination of employment.5.3 No Requirement of Mitigation. The Executive shall not be required to mitigate the amount of any payment orbenefit provided for in this Section 5 by seeking other employment or otherwise, nor shall any compensation or other paymentsreceived by the Executive from other persons after the date of termination reduce any payments due under this Section 5.5.4 Limitation.(a) Anything in this Agreement to the contrary notwithstanding, if any compensation, payment, benefit ordistribution by the Company or Employer Bank to or for the benefit of Executive, whether paid or payable or distributed or distributablepursuant to the terms of this Agreement or otherwise (collectively, the “Severance Payments”), would be subject to the excise taximposed by Section 4999 of the Code, then, the following provisions shall apply: 6Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(i) If the Threshold Amount (as hereinafter defined) is less than (x) the Severance Payments, butgreater than (y) the Severance Payments reduced by the-sum of (A) the Excise Tax (as defined below) and (B) the total of the Federal,state, and local income and employment taxes on the amount of the Severance Payments which are in excess of the Threshold Amount,then the Severance Payments that would otherwise be payable under this Agreement shall be reduced (but not below zero) to the extentnecessary so that the maximum Severance Payments shall not exceed the Threshold Amount. To the extent that there is more than onemethod of reducing the Severance Payments to bring them within the Threshold Amount, Executive shall determine which method shallbe followed; provided that if Executive fails to make such determination within 45 days after the Company has sent Executive writtennotice of the need for such reduction, the Company may determine the amount of such reduction in its sole discretion.(ii) If, however, the Severance Payments, reduced by the sum of (A) the Excise Tax and (B) thetotal of the Federal, state and local income and employment taxes payable by Executive on the amount of the Severance Paymentswhich are in excess of the Threshold Amount, are greater than or equal to the Threshold Amount, there shall be no reduction in theSeverance Payments to Executive pursuant to Paragraph 5.4(a)(i) above.(b) For the purposes of this Section 5.4, the term “Threshold Amount” shall mean three (3) timesExecutive’s “base amount” (within the meaning of Section 280G(b)(3) of the Code and the regulations promulgated thereunder) lessone dollar ($1.00); and the term “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code, and any interest orpenalties incurred by Executive with respect to such excise tax.(c) The determination as to which of Paragraph 5.4(a)(i) or 5.4(a)(ii) shall apply to Executive shall bemade by Vavrinek, Trine, day & Co, LLP, independent registered public accountants, or any other independent accounting firmselected by mutual agreement of the Company and Executive (the “Accounting Firm”), which agreement shall not be unreasonablywithheld or delayed by either party. Such Accounting Firm shall provide detailed supporting calculations both to the Company andExecutive within 15 business days of the date of Executive’s Good Reason Termination, if applicable, or at such earlier time as isreasonably requested by the Company or Executive. For purposes of determining which of the alternative provisions of 5.4(a)(i) or5.4(a)(ii) shall apply, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxationapplicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highestmarginal rates of individual taxation in the state and locality of Executive’s residence on the Termination Date, net of the maximumreduction in federal income taxes which could be obtained from deduction of such state and local taxes. Any determination by theAccounting Firm shall be binding on the Company and Executive.5.5 Withholding. Notwithstanding anything to the contrary that may be contained elsewhere in this Agreement, allpayments made to Executive under this Agreement shall be made net of all taxes and other amounts required to be withheld from thewages or salary of employees under applicable federal, state or local laws or regulations.6. Termination of Agreement. Notwithstanding Section 2 hereof, this Agreement shall terminate sooner as provided in thisSection 6.6.1 Termination of Employment Other Than for Good Reason. This Agreement shall terminate upon the happening,at any time prior to the termination of Executive’s employment for Good Reason pursuant to Section 4 hereof, of any of the followingevents: 7Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(a) Executive’s Disability or Death. This Agreement shall terminate upon the termination of Executive’semployment as a result of Executive’s disability pursuant to and in accordance with Section 6(e) of the Employment Agreement. ThisAgreement also shall terminate immediately in the event of the death of the Executive.(b) Retirement. This Agreement shall terminate automatically on Retirement (as hereinafter defined) ofExecutive. The term “Retirement” as used in this Agreement shall mean termination by the Company or the Executive of Executive’semployment based on the Executive’s having reached age 75 or such other age as shall have been fixed in any arrangement establishedwith the Executive’s consent with respect to Executive retirement.(c) Cause. This Agreement shall terminate, if Executive’s employment with the Company or an EmployerBank is terminated for Cause, as such term is defined in Section 6(a) of the Employment Agreement.(d) Termination by Executive without Cause. This Agreement shall terminate upon any voluntarytermination by Executive of his/her employment with the Company or the Bank, as the case may be, other than pursuant to Section 4 ofthis Agreement.In the event of a termination of this Agreement pursuant to this Section 6.1, then, notwithstanding anything to thecontrary that may be contained elsewhere herein, except for any severance or other compensation to which Executive may be entitled,by reason of such termination, under the Employment Agreement, neither the Company nor the Bank shall have any liability toExecutive, or Executive’s estate, heirs, successors, representatives or assigns, due to such termination of this Agreement or by reason ofany prior or subsequent Change in Control of the Company.6.2 Effect of Good Reason Termination on Term of this Agreement. In the event of a Good Reason Terminationpursuant to Section 4 hereof, Executive shall have no further rights or remedies under this Agreement, except his/her right to receive theseverance compensation set forth in Section 5 hereof attributable to the occurrence of the Good Reason Event that entitled Executive toterminate his/her employment pursuant to Section 4 hereof. Accordingly, but without limiting the generality of the foregoing, Executiveshall be entitled to receive any compensation under this Agreement in the event of the occurrence of a second Change in Control of theCompany after the date of the Executive’s Good Reason Termination.7. Release of Claims. The obligations of the Company under this Agreement shall constitute the only obligations of theCompany arising from a Good Reason Termination by Executive pursuant to Section 4 hereof. Additionally, upon any suchtermination, except for Executive’s rights and the obligations of the Company or the Bank (as the case may be) under Section 5 hereof,none of the Company, the Bank or any of their affiliates shall have any obligation or liability of any kind or nature whatsoever toExecutive by reason of or arising out of his/her employment with the Company or the Bank or the termination thereof. Executivefurther agrees that, except for his/her rights and the obligations of the Company or the Bank (as the case may be) under Section 5hereof, all demands, claims and causes of action that Executive may have against, and any and all rights that Executive may have torecover any payments, damages, liabilities or other amounts of any kind or nature whatsoever from, the Company, the Bank or any oftheir affiliates , or any of their respective, officers, directors, shareholders, employees, agents or independent contractors (the“Company Related Parties”), shall be forever released by Executive as a condition precedent to Executive’s rights to receive and theobligations of the Company or Bank (as the case may be) to pay or provide to Executive the severance compensation and benefitsprovided for in Section 5 hereof, irrespective of whether or not such demands, claims, causes of action or rights arise or have arisenunder (i) this Agreement, the Employment Agreement, or any other contract, 8Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.agreement or understanding, written or oral, between Executive and the Company or any of the Company Related Parties, or (ii) anyemployee or executive benefit plans or programs, including any stock incentive or stock based compensation plans, or (iii) any federal,state or local statutes or government regulations, or otherwise, and whether or not such demands, claims, causes of action or rights areknown or unknown, certain or uncertain, or suspected or unsuspected by Executive. Executive further covenants and agrees that suchcondition precedent shall not be satisfied unless and until he/she executes and delivers to the Company all appropriate writtenagreements reflecting such settlement and complete release in a form reasonably acceptable to the Company.9. Arbitration of Disputes. Except as otherwise provided in the last sentence of this Section 9 with respect to equitableproceedings and remedies, any controversy or claim arising out of or relating to this Agreement, the performance or non-performance(actual or alleged) by either party of any of such party’s respective obligations hereunder or any actual or alleged breach thereof, shall,to the fullest extent permitted by law, be resolved exclusively by binding arbitration in any forum and form agreed upon by the partiesor, in the absence of such an agreement, under the auspices of the American Arbitration Association (“AAA”) in Orange County,California in accordance with the Employment Dispute Resolution Rules of the AAA, including, but not limited to, the rules andprocedures applicable to the selection of arbitrators. In the event that any person, other than Executive or the Company, may be a partywith regard to any such controversy or claim, such controversy or claim shall be submitted to arbitration subject to such other person’sagreement thereto. Judgment upon the award rendered by the arbitrator in any such arbitration proceeding may be entered in any courthaving jurisdiction thereof. This Section 9 shall be specifically enforceable. The reasonable fees and disbursements of the prevailingparty’s legal counsel, accountants and experts incurred in connection with any such arbitration proceeding shall be paid by the non-prevailing party in such arbitration proceeding. Notwithstanding anything to the contrary that may be contained in this Section 9,however, each party shall be entitled to bring an action in any court of competent jurisdiction for the purpose of obtaining a temporaryrestraining order or a preliminary or permanent injunction or other equitable remedies in circumstances in which such relief isappropriate.10. Miscellaneous.10.1 Entire Agreement. This Agreement constitutes the entire agreement between the parties relating to the subjectmatter hereof and supersedes all prior agreements and understandings, whether written or oral, between the parties with respect to thatsubject matter.10.2 Assignment; Successors and Assigns, etc. Neither party may make any assignment, in whole or in part, of thisAgreement or any interest herein, by operation of law or otherwise, or delegate any of their respective duties hereunder, without theprior written consent of the other party; except that in the event of a Change in Control of the Company, the rights and obligations ofthe Company under this Agreement may be assigned to the successor-in-interest of the Company in such Change in Control without theconsent of Executive, provided that (i) such successor-in-interest enters into a written agreement, in a form reasonably acceptable toExecutive, by which such successor-in-interest shall expressly agree to be bound by this Agreement and (ii) no such assignment shallrelieve the Company of its obligations under this Agreement. Subject to the foregoing restrictions on assignment, this Agreement shallinure to the benefit of and be enforceable by and shall be binding on the parties and their respective successors, legal representatives,executors, administrators, heirs, devisees and legatees, and permitted assigns. If Executive should die while any amounts are stillpayable to him/her pursuant to Section 5 hereof, all such amounts, unless otherwise provided herein, shall be paid in accordance withthe terms of this Agreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’sestate. 9Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.10.3 Severability. If any portion or provision of this Agreement (including, without limitation, any portion orprovision of any section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction,then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it isso declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid andenforceable to the fullest extent permitted by law.10.4 Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by thewaiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by anyparty of any right or obligation under or breach of this Agreement, shall not prevent any subsequent enforcement of such term, right orobligation or be deemed a waiver of any prior or subsequent breach of the same obligation.10.5 Notices. Any notices, requests, demands and other communications provided for by this Agreement(“Notices”) shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service or byregistered or certified mail, postage prepaid, return receipt requested, to Executive at the last address Executive has filed in writing withEmployer or, in the case of any Notice to be given to the Company or the Employer (if other than the Company), at its headquartersoffices, attention of the Chief Executive Officer, and shall be effective on the date of delivery in person or by courier or two(2) business days after the date such Notice is mailed by registered or certified mail, postage prepaid and return receipt requested(whether or not the requested receipt is returned).10.6 Amendment. This Agreement may be amended or modified only by a written instrument signed by theExecutive and by a duly authorized officer or other representative of the Company.10.7 Interpretation and Construction of this Agreement. This Agreement is the result of arms-length bargaining bythe parties, each party was represented by legal counsel of such party’s choosing in connection with the negotiation and drafting of thisAgreement and no provision of this Agreement shall be construed against a party, due to an ambiguity therein or otherwise, by reasonof the fact that such provision may have been drafted by counsel for such party. For purposes of this Agreement: (i) the term“including” shall mean “including without limitation” or “including but not limited to”; (iv) the term “or” shall not be deemed to beexclusive; and (v) the terms “hereof,” “herein,” “hereinafter,” “hereunder,” and “hereto,” and any similar terms shall refer to thisAgreement as a whole and not to the particular Section, paragraph or clause in which any such term is used, unless the context in whichany such term is used clearly indicates otherwise.10.8 Governing Law. This Agreement is being entered into and will be performed in the State of California andshall be construed under and be governed in all respects by and enforced under the laws of the State of California, without giving effectto its conflict of laws rules or principles.10.9 Headings. The Section and paragraph headings in this Agreement are inserted for convenience of referenceonly and shall not affect, nor shall be considered in connection with, the construction or application of any of the provisions of thisAgreement.10.10 Counterparts. This Agreement may be executed in any number of counterparts, and each such executedcounterpart, and any photocopy or facsimile copy thereof, shall constitute an original of this Agreement; but all such executedcounterparts and photocopies and facsimile copies thereof shall, together, constitute one and the same instrument. 10Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. “Company” “Executive”KELLER FINANCIAL GROUP By: /S/ ULRICH E. KELLER, JR. /S/ JOHN M. MICHELName: Ulrich E. Keller, Jr. Name: John M. MichelTitle: Chairman & CEO “Bank” FIRST FOUNDATION BANK By: /S/ SCOTT F. KAVANAUGH Name: Scott F. Kavanaugh Title: Chairman & CEO 11Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 14.1FIRST FOUNDATION INC.CODE OF CONDUCTFOR THECHIEF EXECUTIVE OFFICER AND OTHER SENIOR FINANCIAL OFFICERS I.PurposeThis Code of Conduct for the Chief Executive Officer and other Senior Financial Officers of First Foundation Inc. (the“Company”) is being adopted pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K promulgatedby the Securities and Exchange Commission (the “SEC”). This Code of Conduct (the “Code of Conduct” or the “Code”) is designed todeter wrongdoing and to promote: • Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal andprofessional relationships; • Full, fair, accurate, timely and understandable disclosure in reports and documents filed by the Company with the SECand in the Company’s other public communications; • Compliance with applicable laws, rules and regulations; • Prompt internal reporting of any violations of this Code; and • Accountability for adherence to this Code. II.ApplicabilityThe Company’s Chief Executive Officer and Chief Financial Officer and its other senior financial or accounting officers(collectively, the “Senior Financial Officers”) are bound by and are required to comply with this Code. The Senior Financial Officersalso are bound by the separate Code of Business and Ethical Conduct for Employees and Directors (the “Company-Wide Code”), whichis applicable, to the extent set forth therein, to all officers, other employees and Directors of the Company.1 By accepting this Code,each Senior Financial Officer agrees that he or she will adhere to the following principles and responsibilities governing professionaland ethical business conduct.In addition, part of each Senior Financial Officer’s ethical responsibility is to help enforce the Code. Accordingly, each SeniorFinancial Officer should be alert to possible violations and promptly report violations or suspected violations of the Code to the AuditCommittee of the Board of Directors (the “Audit Committee”).Nothing in this Code is intended to alter the existing legal rights or obligations of the Company, First Foundation Bank or FirstFoundation Advisors (as applicable) and any of their respective Senior Financial Officers, including “at-will” employment arrangementsor the terms of any employment or compensation-related agreements or the Company employment policies. The standards in this Code,coupled with the standards in the Company-Wide Code of Conduct, should be viewed as the minimum 1 Unless the context in which such terms may be used indicates otherwise, the term “Company” means the Company and each of its wholly ownedsubsidiaries, including First Foundation Bank and First Foundation Advisors and the term “directors, officers and employees of the Company” or anysimilar terms or phrases, mean any or all persons who are directors, officers or employees of the Company, First Foundation Bank or First FoundationAdvisors. Code of Business Ethics and Conduct for Chief Executive and Senior Financial Officers – As Adopted on January 28, 2014Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.standards that the Company expects of its Senior Financial Officers and other officers and employees to maintain in the conduct of theCompany’s businesses and the performance of their day-to-day duties.A. Standard of ConductEach Senior Financial Officer has a duty to comply with applicable law, act with honesty, integrity and fairness, and use careand diligence in performing his or her responsibilities to the Company.B. Company DisclosuresEach Senior Financial Officer is responsible for full, fair, accurate and timely disclosure in the reports and documents whichthe Company files with, or submits to, the SEC, reports and documents filed or submitted by the Company to any banking or otherregulatory agencies (“Regulatory Reports”) and in other public communications made by the Company. Each Senior Financial Officermust promptly bring to the attention of the Audit Committee any material information of which he or she may become aware that islikely to materially affect the timing, accuracy or completeness of disclosures made by the Company in its SEC filings, its RegulatoryReports or other public communications.Each Senior Financial Officer shall promptly bring to the attention of the Audit Committee any information he or she maypossess or of which he or she may become aware concerning (i) significant deficiencies in the design or operation of internal controlswhich could adversely affect the Company’s ability to record, process, summarize and report financial data, and (ii) any fraud, whetheror not material, that involves management or other employees who have a significant role in the Company’s financial reporting,disclosures or internal controls.C. Conflicts of InterestEach Senior Financial Officer must avoid situations that represent actual or apparent conflicts of interest with his or herresponsibilities to the Company. In addition, each Senior Financial Officer must report to the Audit Committee any actual or apparentconflicts of interest involving any employee who has a significant role in financial reporting, disclosures or internal controls.D. Cooperation with AuditorsEach Senior Financial Officer must work cooperatively with the Company’s independent auditors in the conduct of the auditof the Company’s annual financial statements, the review of the Company’s quarterly financial statements, the evaluation of theCompany’s internal controls and the review and filing of the Company’s Regulatory Reports and public disclosure documents.E. Legal ComplianceEach Senior Financial Officer must comply with applicable laws, rules and regulations, including the laws of the Company’sstate of incorporation, the rules and regulations of the SEC or other regulatory agencies applicable to the Company or any of itssubsidiaries, and the listing rules of any stock exchange on which the Company’s securities may be listed for trading. Each SeniorFinancial Officer shall promptly bring to the attention of the Audit Committee any information he or she may have or learn aboutconcerning evidence of any material violation of any laws, rules or regulations applicable to the Company or its subsidiaries and theoperation of their respective businesses. Code of Business Ethics and Conduct for Senior Financial Officers – As Adopted on January 28, 2014 2Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.F. Remedies and Disciplinary Actions for Violations of the CodeThe Audit Committee shall determine, or designate appropriate Company personnel to determine, appropriate remedial ordisciplinary actions to be taken in the event of any violation of this Code of Conduct by any Senior Financial Officer. Such actions shallbe reasonably designed to deter wrongdoing and to promote accountability for adherence to this Code, and may include written noticesto the Senior Financial Officer involved that the Audit Committee has determined that there has been a violation, or a demotion, re-assignment or suspension of such Senior Financial Officer’s employment, with or without pay, or a termination of his or heremployment.G. Amendments and WaiversAmendments of this Code. The Company’s Board of Directors or Audit Committee may, in the future, modify or update thepolicies and procedures contained in this Code of Conduct or any of the other policies or procedures currently in effect. Each SeniorFinancial Officer should review and become familiar with and, when necessary, consult the policies and procedures applicable to thespecific areas of his or her responsibilities.Waivers of this Code. The Audit Committee shall consider any request for a waiver of this Code from any of the Company’sSenior Financial OfficersDisclosure of Amendments and Waivers. All amendments or waivers of this Code of Conduct shall be disclosed in accordancewith the applicable rules and regulations of the SEC or any stock exchange on which the Company’s shares may be listed. CERTIIFICATION OF SENIOR FINANCIAL OFFICERThe undersigned Senior Financial Officer of First Foundation Inc. hereby certifies the he or she has read and understands andaccepts his or her responsibilities under this Code of Conduct. Date: ,__, 20 (Signature) (Name-Please Print) Code of Business Ethics and Conduct for Senior Financial Officers – As Adopted on January 28, 2014 3Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 21.1SUBSIDIARIES OF REGISTRANT Name and State or other Jurisdiction of Incorporation Registrant’sPercentageOwnershipFirst Foundation Advisors, a California corporation 100%First Foundation Bank, a California corporation 100%In accordance with the instructions set forth in Paragraph (b) of Item 601 of Regulation S-K, we have omitted subsidiaries that, if considered in theaggregate as a single subsidiary, would not have constituted a significant subsidiary as of December 31, 2013.Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe have issued our report dated March 17, 2014 with respect to the accompanying the consolidated financial statements of First Foundation Inc.and Subsidiaries (the Company) for the years ended December 31, 2013 and 2012 included in the Company’s Annual Report on Form 10-K for the yearsended December 31, 2013 and 2012. We hereby consent to the incorporation by reference of that report in the Company’s Registration Statement on Form S-8 (File No. 333-193658). /S/ VAVRINEK, TRINE, DAY & CO. LLPLaguna Hills, CaliforniaMarch 24, 2014Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.1CERTIFICATIONS OF CHIEF EXECUTIVE OFFICERUNDERSECTION 302 OF THE SARBANES-OXLEY ACTI, Scott F. Kavanaugh, certify that: 1.I have reviewed this Annual Report on Form 10-K of First Foundation Inc. for the fiscal year ended December 31, 2013; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Dated: March 25, 2014 /S/ SCOTT F. KAVANAUGHScott F. KavanaughChief Executive OfficerSource: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 31.2CERTIFICATIONS OF CHIEF FINANCIAL OFFICERUNDERSECTION 302 OF THE SARBANES-OXLEY ACTI, John M. Michel, certify that: 1.I have reviewed this Annual Report on Form 10-K of First Foundation Inc. for the fiscal year ended December 31, 2013; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Dated: March 25, 2014 /S/ JOHN M. MICHELJohn M. MichelExecutive Vice Presidentand Chief Financial OfficerSource: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 32.1CERTIFICATION OF CHIEF EXECUTIVE OFFICERPursuant to Section 906 of the Sarbanes-Oxley Act of 2002FIRST FOUNDATION INC.Annual Report on Form 10-Kfor the Year ended December 31, 2013In connection with the accompanying Annual Report on Form 10-K of First Foundation Inc. (the “Company”), for the year ended December 31,2013, as filed with the Securities and Exchange Commission as of the date hereof (the “Annual Report”), I, Scott F. Kavanaugh, Chief Executive Officer ofthe Company, hereby certify pursuant to 18 U.S.C.§ 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:(1) The Annual Report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended; and(2) The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company. Date: March 25, 2014 /s/ SCOTT F. KAVANAUGH Scott F. Kavanaugh Chief Executive Officer A signed original of this written statement required by Section 906 hasbeen provided to First Foundation Inc. and will be retained by FirstFoundation Inc. and furnished to the Securities and ExchangeCommission or its staff upon request.Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 32.2CERTIFICATION OF CHIEF FINANCIAL OFFICERPursuant to Section 906 of the Sarbanes-Oxley Act of 2002FIRST FOUNDATION INC.Annual Report on Form 10-Kfor the Year ended December 31, 2013In connection with the accompanying Annual Report on Form 10-K of First Foundation Inc. (the “Company”), for the year ended December 31,2013, as filed with the Securities and Exchange Commission as of the date hereof (the “Annual Report”), I, John M. Michel, Chief Financial Officer of theCompany, hereby certify pursuant to 18 U.S.C.§ 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:(1) The Annual Report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended; and(2) The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company. Date: March 25, 2014 /S/ JOHN M. MICHEL John M. Michel Chief Financial Officer A signed original of this written statement required by Section 906 has beenprovided to First Foundation Inc. and will be retained by First Foundation Inc.and furnished to the Securities and Exchange Commission or its staff uponrequest.Source: First Foundation Inc., 10-K, March 25, 2014Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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