First Foundation
Annual Report 2018

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KFirst Foundation Inc. - FFWMFiled: March 01, 2019 (period: December 31, 2018)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. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018Commission file number: 001-36461 FIRST FOUNDATION INC.(Exact name of registrant as specified in its charter) Delaware 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:Common Stock, par value $0.001 per share NASDAQ Global Stock Market(Title of each class) (Name of exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒.Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒.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 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained,to the best of registrant’s knowledge, 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. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growthcompany. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer☒Accelerated filer☐Non-accelerated filer☐Smaller reporting company☐ Emerging growth company☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒As of June 30, 2018, the aggregate market value of the common stock held by non-affiliates of the registrant, computed by reference to the average high and low sales priceson the NASDAQ Global Stock Market as of the close of business on June 30, 2018, was approximately $725 million.As of February 25, 2019, there were 44,501,613 shares of registrant’s common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCEExcept as otherwise stated herein, Part III of the Form 10-K are incorporated by reference from the Registrant’s Definitive Proxy Statement which is expected to be filedwith the Commission on or before April 30, 2019 for its 2019 Annual Meeting of Shareholders. Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.ANNUAL REPORT ON FORM 10-KFOR THE YEAR ENDED DECEMBER 31, 2018TABLE OF CONTENTS Page No.FORWARD-LOOKING STATEMENTS ii PART I Item 1 Business 1Item 1A Risk Factors 16Item 1B Unresolved Staff Comments 29Item 2 Properties 29Item 3 Legal Proceedings 29Item 4 Mine Safety Disclosures 29 PART II Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 30Item 6 Selected Financial Data 33Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 36Item 8 Financial Statements and Supplementary Data 61Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 109Item 9A Controls and Procedures 109Item 9B Other Information 110 PART III Item 10 Directors, Executive Officers and Corporate Governance 111Item 11 Executive Compensation 111Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 111Item 13 Certain Relationships and Related Transactions and Director Independence 111Item 14 Principal Accounting Fees and Services 111 PART IV Item 15 Exhibits and Financial Statement Schedules 112Item 16 Form 10-K Summary 112Index to Exhibits E-1Signatures S-1 iSource: First Foundation Inc., 10-K, March 01, 2019Powered 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.FORWARD-LOOKING STATEMENTSIn addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of1933, 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 are urgedto 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” and similarexpressions. Readers of this report are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the respective dateson which such statements were made and which are subject to risks, uncertainties and other factors that could cause actual results and the timing of certainevents 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 report 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 01, 2019Powered 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.PART 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 Delaware corporation, (“FFI” or the “Company”) and its consolidated subsidiaries, First Foundation Advisors (“FFA”) and FirstFoundation Bank (“FFB” or “Bank”), and FFB’s wholly owned subsidiaries, First Foundation Insurance Services (“FFIS”) and Blue Moon Management,LLC.We are a financial services company that provides a comprehensive platform of financial services to individuals, businesses and otherorganizations. We currently conduct our operations in California, Nevada and Hawaii. Our integrated platform provides investment advisory and wealthmanagement services, banking products and services, trust services, and life insurance services to effectively and efficiently meet the financial needs of ourclients. We provide business banking products and services to small to moderate-sized businesses and professional firms, and consumer banking products andservices to individuals and families. As of December 31, 2018, we had $5.8 billion of total assets, $4.3 billion of loans, $4.5 billion of deposits and $3.9billion of assets under management (“AUM”). Our investment advisory and wealth management, trust and insurance services provide us with substantial, fee-based, recurring revenues, such that in 2018, our non-interest income was 19% of our total revenues.Our operating strategy is to build strong and stable long-term client relationships, one at a time, by delivering high quality banking and trustproducts and services and investment management. The primary role of our bankers, relationship managers and loan officers, in addition to attracting newclients, is to develop and maintain a strong relationship with their clients and to coordinate the services we provide to their clients. We take a team approachto delivering our platform of services to our clients. Our bankers, relationship managers and loan officers work as a team to deliver our products and services,with each member of the team responsible for managing the delivery of products and services in their area of expertise. This allows us to provide moretailored solutions while operating in a safe and sound manner. We have created compensation structures that encourage and reward our bankers, relationshipmanagers and loan officers to work together as a team to provide the client with the products and services they desire. We believe we will be able to maintaina client-focused approach by recruiting and retaining experienced and qualified staff.We intend to continue to grow our business by (i) marketing our services directly to prospective new clients; (ii) obtaining new client referrals fromexisting clients, professional and fiduciary referrals and through referral agreements with asset custodial firms; (iii) adding experienced bankers, relationshipmanagers and loan officers who may have established client relationships that we can serve; (iv) cross-selling our services among our wealth management andbanking clients; (v) making opportunistic acquisitions of complementary businesses and/or establishing de novo offices in select markets within and outsideour existing market areas.Our broad range of financial products and services are more consistent with those offered by larger financial institutions, while our high level ofpersonalized service, accessibility and responsiveness to our clients are more typical of the services offered by boutique investment advisory and wealthmanagement firms and community banks. We believe this combination of an integrated platform of comprehensive financial services and products andpersonalized and responsive service differentiates us from many of our competitors and has contributed to the growth of our client base and our business.FFI is a bank holding company incorporated in Delaware. As a bank holding company, we are subject to regulation and examination by the Boardof Governors of the Federal Reserve System (the “Federal Reserve Board” or “FRB”) and the Federal Reserve Bank of San Francisco (“FRBSF”) underdelegated authority from the FRB. FFB is a California state chartered bank and is subject to regulation and examination by the Federal Deposit InsuranceCorporation (“FDIC”) and the California Department of Business Oversight (“DBO”). FFB also is a member of the Federal Home Loan Bank of San Francisco(“FHLB”), which provides it with a source of funds in the form of short-term and long-term borrowings. FFA is a California corporation that began operatingas a fee-based registered investment advisor under the Investment Advisers Act of 1940, (“Investment Advisers Act”) in 1990, and is subject to regulation bythe Securities and Exchange Commission, (“SEC”), under that Act.Overview of Our Banking BusinessThrough FFB, we offer a wide range of loan products, deposit products, business and personal banking services and trust services. The yields werealize on our loans and other interest-earning assets and the interest rates we pay to attract and retain deposits are the principal determinants of our bankingrevenues.We also provide trust services to clients using its California and Nevada trust powers. Those services, which consist primarily of the management oftrust assets, complement the investment and wealth management services that FFA offers to our clients. FFIS 1Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.was established to provide life agency insurance services. Additionally, trust service fees and life insurance brokerage fees provide additional sources ofnoninterest income for us.FFB’s operations comprise the banking, trust and insurance segments of our business. At December 31, 2018, FFB had $5.8 billion of total assets,$4.3 billion of loans, $4.5 billion of deposits and $742 million of trust AUM.Overview of Our Investment Advisory and Wealth Management BusinessFFA is a fee-based investment advisor which provides investment advisory and wealth management services primarily to high net-worthindividuals, their families and their family businesses, and other affiliated organizations. FFA strives to provide its clients with a high level of personalizedservice by its staff of experienced relationship managers. FFA’s operations comprise the investment advisory and wealth management segments of ourbusiness. As of December 31, 2018, FFA had $3.9 billion of AUM.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. Our lending products are the primary drivers of revenues and earnings for the consolidated entity. As such, we arecommitted to offer market competitive lending products that: meet the needs of our clients; are underwritten in a prudent manner; and provide an adequatereturn based on their size and credit risk. Deposits represent our principal source of funds for making loans and investments and acquiring other interest-earning assets.We maintain a client-focused approach by recruiting and retaining experienced and qualified banking personnel, who are described as privateclient relationship managers, commercial bankers, small business bankers, regional directors of loan production for multifamily and non-owner occupiedcommercial real estate, and branch managers. FFB has bankers in each location across the platform sourcing loan and deposit business to cultivate anddevelop quality banking relationships from existing and potential clients. FFB’s banking platform is focused on program-specific products and clients.The following table sets forth information regarding the types of loans that we make, by amounts and as a percentage of our total loans outstandingat December 31: 2018 2017 (dollars in thousands) Balance % of Total Balance % of Total Recorded Investment balance: Loans secured by real estate: Residential properties: Multifamily $1,956,935 45.7% $1,935,429 52.9%Single family 904,828 21.1% 645,816 17.7%Total loans secured by residential properties 2,861,763 66.8% 2,581,245 70.6%Commercial properties 869,169 20.3% 696,748 19.1%Land 80,187 1.9% 37,160 1.0%Total real estate loans 3,811,119 89.0% 3,315,153 90.7%Commercial and industrial loans 449,805 10.5% 310,779 8.5%Consumer loans 22,699 0.5% 29,330 0.8%Total loans $4,283,623 100.0% $3,655,262 100.0%We have established a lending platform that provides financing solutions to our strong and stable client relationships, including individuals,entities and businesses. The primary objective of each of the lending channels is to provide exceptional client service to differentiate us from ourcompetitors, Each lending channel features standardized pricing, uniform sizing and a streamlined process resulting in a high through-put application-to-funding ratio. Each of our office locations are focused on serving the businesses and clients within their market area. Our lending activities serve the creditneeds of individuals, owners of multifamily and commercial real estate properties, 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 have a lending platform focused on three primary channels: 1) Commercial Real Estate (‘CRE”), defined as multifamily residential, non-owneroccupied commercial real estate, construction and land; 2) Commercial and Industrial (“C&I”) defined as term and revolving credit/lines of credit for small tomoderate-sized businesses and professional firms, owner occupied commercial real estate; and 3) Consumer defined as loan products to individuals,including single family residential real estate loans and home equity 2Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.lines of credit and other consumer-related loans focused on our current and prospective clients of our platform. CRE Loan Channel: Loans originated under the CRE loan channel are supported by the underlying cash flow from operations of the related realestate collateral. The loan types under this channel consist of multifamily residential, non-owner occupied CRE and construction and land.Residential Mortgage Loans – Multi-family: We make multi-family residential mortgage loans for terms up to 30 years for 5+ unit properties. Theseloans generally are adjustable rate loans with interest rates tied to a variety of independent indexes; although in many cases these loans have initial fixed rateperiods ranging from 3 to 10 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 subject real estate collateral cashflow, the character and creditworthiness of the borrower and guarantors, loan-to-value and debt service coverage ratios, borrower liquidity and credit history.In addition, we perform stress testing for changes in interest rates, capitalization rates and other factors and review general economic trends such as rentalrates, values and vacancy rates. We typically require full or limited recourse from the owners of the entities to which we make such loans.CRE Loans – Non-owner Occupied: Our commercial real estate loans are secured by first trust deeds on nonresidential real property with terms upto 10 years. We typically focus on multi-tenant industrial, office and retail real estate collateral with strong, stable tenancy, strong, stable historical cash flowand located in stable, strong demand submarket locations. The bank will consider special purpose lending on a limited basis for our existing client base.These loans generally are adjustable rate loans with interest rates tied to a variety of independent indexes; although in many cases these loans have initialfixed rate periods ranging from 3 to 10 years and adjust thereafter based on an applicable index. These loans generally have interest rate floors, payment caps,and prepayment penalties. The loans are underwritten based on a variety of underwriting criteria, including an evaluation of the subject real estate collateralcash flow, the character and creditworthiness of the borrower and guarantors, loan-to-value and debt service coverage ratios, borrower liquidity and credithistory. In addition, we perform stress testing for changes in interest rates, capitalization rates and other factors and review general economic trends such aslease rates, values and absorption rates. We typically require full recourse from the owners of the entities to which we make such loans.Construction and Land Loans: Construction and land loans are provided to borrowers with extensive construction experience and as anaccommodation to existing or potential clients of the platform; or were obtained through acquisition of other banks. There is not a separate sales effort togenerate construction and land loans. These loans are custom tailored to fit the individual needs of each specific request. The bank typically considersconstruction loan requests for urban infill multifamily properties and owner-occupied single family primary residences in the submarket locations the bank isexperienced in and offers permanent real estate loans. Construction and land loans are secured by first trust deeds on real property. These loans generally areadjustable rate loans with interest rates tied to a variety of independent indexes; although in some rare cases these loans have fixed interest rates for shortperiods and adjust thereafter based on an applicable index. These loans generally have interest rate floors, payment caps, and prepayment penalties. Theloans are underwritten based on a variety of underwriting criteria, including an evaluation of the character and creditworthiness of the borrower andguarantors, loan to value and debt service coverage ratios, borrower liquidity and credit history. In addition, we perform stress testing for changes in interestrates, capitalization rates and other factors and review general economic trends such as lease rates, values and absorption rates. We typically require fullrecourse from the owners of the entities to which we make such loans.C&I Loan Channel: Loans originated under the C&I loan channel are generally supported by the cash flows generated from the businessoperations of the entity to which the loan is made, and, except for loans secured by owner occupied CRE, are generally secured by non-real estate assets, suchas equipment, inventories or accounts receivable. The C&I loan channel is focused on developing quality full service business banking relationships,including loans and deposits, by offering commercial products for small to moderate-sized businesses across the banking platform. This allows us to providesupport for small to mid-sized businesses in our market areas. The typical C&I loan client utilizes more than one element of our platform, including almost allsuch clients using our deposit products and services. The bank typically focuses on C&I clients that are manufacturers, distributors, wholesalers, importersand professional service companies.Commercial Real Estate Loans - Owner Occupied: Owner occupied CRE loans and commercial loans are generally made to businesses that havedemonstrated a history of profitable operations. To qualify for such loans, prospective borrowers generally must have operating cash flow sufficient to meettheir obligations as they become due, good payment histories, proper balance sheet management of key cash flow drivers, and experienced management. Ourcommercial real estate loans are secured by first trust deeds on nonresidential real property, typically office, industrial or warehouse. These loans generallyare adjustable rate loans with interest rates tied to a variety of independent indexes; although in some cases these loans have fixed interest rates for periodsranging from 3 to 15 years and adjust thereafter based on an applicable indices and terms. 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 3Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.credit history and the trends in balance sheet and income statement management. In addition, 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 full recoursefrom the owners of the entities to which we make such loans.Commercial 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, good payment histories, proper balance sheet management of key cash flow drivers, andexperienced management. Commercial term loans are either fixed rate loans or adjustable rate loans with interest rates tied to a variety of independentindexes and are made for terms ranging from one to seven years subject to the useful life of the asset financed. Commercial lines of credit are adjustable rateloans with interest rates usually tied to the Wall Street Journal prime rate or LIBOR rates, are made for terms ranging from one to two years, and containvarious covenants, including possible requirements that the borrower reduce its credit line borrowings to zero for specified time periods during the term of theline of credit, maintains liquidity requirements with advances tied to periodic reviews and approved based upon a percentage of accounts receivable, andinventory or unmonitored lines for very small lines or credit or those with significant financial strength and liquidity. Commercial loans are underwrittenbased on a variety of underwriting criteria, including an evaluation of the character and creditworthiness of the borrower and guarantors, debt servicecoverage ratios, historical and projected client income, borrower liquidity and credit history, and the trends in income and balance sheet management. Inaddition, we perform stress testing for changes in interest rates and other factors and review general economic trends in the client’s industry. We typicallyrequire full recourse from the owners of the entities to which we make such loans.Equipment Financing: We offer equipment financing to provide financing solutions, including equipment finance agreements and leases for a fullrange of business equipment, and sourcing the business through third party originators, including equipment brokers, lessors and other referral sources. Themajority of the equipment financing business will be for acquiring machines, tools, vehicles, furniture, tenant improvement remodeling/expansion/upgradeand computers. The typical equipment finance loan will be smaller in size, typically less than $100,000; will have terms ranging from 3 to 7 years; will carryfixed rates; and will be secured by the underlying equipment and the operations of the borrower.Small Business Lending and USDA Lending: The Bank is approved as a Small Business Administration (“SBA”) lender and as a United StatesDepartment of Agriculture (“USDA”) lender. We are committed to our small business commercial lending to serve our communities and small businesses thatoperate in our network of retail branch locations. We have recently expanded the SBA lending programs. As government guaranteed programs, we need tocomply with underwriting guidelines, servicing and monitoring requirements, and terms and conditions set forth under the related programs standardoperating procedures. SBA loans follow our underwriting guidelines established for non-SBA commercial and industrial loans and meet the underwritingcriteria set forth by the SBA. We have also established a small balance portfolio loan program, up to a maximum loan amount of $250,000, to meet therequirements of our small business clients through a streamlined underwriting process.Consumer Channel: The Consumer channel for FFB offers single family residential loans, home equity lines of credit, personal lines of credit andother consumer related products. We do not have a separate marketing program for this channel, rather this channel is directed to a limited amount of fully-vetted broker relationships and as an accommodation for clients or prospective clients of our platform. We expect single family loans to comprise asubstantial majority of the balances in this channel.Residential Mortgage Loans – Single-family: We offer single family residential mortgage loans that in most cases take the form of non-conformingjumbo and super-jumbo loans and FFB does not currently sell or securitize any of its single family residential mortgage loan originations. FFB does notoriginate loans defined as high cost by state or federal banking regulators. The majority of FFB’s single family residential loan originations are collateralizedby first mortgages on real properties located in Southern California. These loans are generally adjustable rate loans with initial fixed rate periods rangingfrom 3 to 10 year terms and terms of the loan not exceeding 30 years. These loans generally have interest rate floors and payment caps. The loans areunderwritten based on a variety of underwriting 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 interestrates and other factors and review general economic trends such as market values.Consumer Loans: We offer consumer loans and line of credit products as an accommodation to clients of our primary business lines, includingpersonal installment loans and lines of credit, and home equity lines of credit designed to meet the needs of our clients. Consumer loans are either fixed rateloans or adjustable rate loans with interest rates tied to a variety of independent indexes and are made for terms ranging from one to ten years. The loans areunderwritten based on a variety of underwriting criteria, including an evaluation of the character, creditworthiness and credit history of the borrower andguarantors, debt to income ratios, borrower liquidity, income verification, and the value of any collateral securing the loan. Historically, a high percentage ofhome equity lines of credit originated by FFB have been in first trust deed position. Repayment of consumer loan are largely dependent on the borrower’songoing cash flows and financial stability and, as a result, generally pose higher credit risks than the other loans that we make. 4Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.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 primary, secondary and tertiary sourcesof repayment, which include the subject real estate collateral cash flow, the business/borrower’s ability to repay and value of the subject collateral securingthe loan. 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 becompensated for by other favorable financial criteria. This personalized and detailed approach allows us to better understand and meet our clients’ borrowingneeds. We handle substantially all of our loan processing, underwriting and servicing at our administrative office in Irvine, California.Deposit Products and ServicesThe following table sets forth information regarding the type of deposits which our clients maintained with us and the average interest rates onthose deposits as of December 31: 2018 2017 (dollars in thousands) Amount % of Total Weighted AverageRate Amount % of Total WeightedAverageRate Demand deposits: Noninterest-bearing $1,074,661 23.7% — $1,097,196 31.9% — Interest-bearing 317,380 7.0% 0.798% 235,294 6.8% 0.411%Money market and savings 1,190,717 26.3% 1.115% 1,210,240 35.1% 0.840%Certificates of deposits 1,950,210 43.0% 2.142% 900,797 26.2% 1.189%Total $4,532,968 100.0% 1.270% $3,443,527 100.0% 0.634%Deposit Products: We offer a wide range of deposit products, including personal and business checking, savings accounts, interest-bearingnegotiable order of withdrawal accounts, money market accounts and time certificates of deposit. Our pricing strategy is to maintain deposit pricing at levelsconsistent with our competitors. This generally allows us to maintain our current deposit relationships. From time to time, we will offer promotional rates toattract new clients to our platform. Our pricing strategy is intended to complement our other products and services so that we can attract and retain clientswithout always paying the highest rates. As of December 31, 2018, our eight largest bank depositors accounted for, in the aggregate, 21% of our totaldeposits. See Item 1A—Risk Factors.Deposit Services: Our deposits services include the following: •Treasury Management: Treasury Management products and services provide our customers the tools to bank with us conveniently withouthaving the need to visit one of our offices and are necessary in attracting complex commercial and specialty deposit clients. These productsand services include bill pay, payee positive pay, wire transfers, internal and external transfers, wire and ACH reconciliation services, remotedeposit capture, mobile/mobile deposit, as well as lockbox and cash vault services. •Digital Banking: FFB offers consumer and business online access to our basic account management, review and processing functions, ourtreasury management products and services. In addition, we provide mobile banking services to both business and consumer clients throughour online access. Deposit Delivery Channels: Our deposit products and services are delivered through the following delivery channels: •Retail Banking: The retail banking delivery channel is made up of 20 banking offices located throughout out market areas. We attempt toplace our banking offices in strategic locations to establish a presence in our target markets, rather than saturating a market with numerousbanking offices. The sales activities at our banking offices are led by the bankers and branch managers located at the offices. In addition to abranch manager, each banking office has a strong operations manager and staff to serve the clients of the office, to provide support to thebankers and branch managers in their sales efforts and to maintain the operational integrity of their offices. In addition to the sales activitiesof the bankers and branch managers, we provide marketing support through periodic deposit campaigns and targeted marketing programstailored to the region in which the banking office is located. •Specialty Deposits: The specialty deposits channel focuses on banking large complex commercial customers and fiduciaries who managecomplicated deposit relationships. This team consists of bankers with industry expertise in our targeted specialty niches, which include, butare not limited to escrow, title, 1031 exchange accommodators, contractor retention escrows, commercial property management andhomeowners associations as well as financial institutions and mortgage servicers, commercial borrowers, EB-5 projects, political treasurersand Opportunity Zone funds. The nature of 5Source: First Foundation Inc., 10-K, March 01, 2019Powered 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. the specialty deposit customer is generally complex and typically requires a larger volume of transactional servicing needs and reportingrequirements. These customers are supported exclusively by the experts in our commercial client services team. This team is responsible forestablishing new accounts, maintenance of existing accounts, monitoring accounts, account reporting, review and acceptance of depositoryagreement’s and other account related contracts. This team possesses a thorough understanding of legal documentation for complexorganizations and legal and regulatory banking requirements for niche industries, balance bank control accounts, ledger posting, and fundsdisbursement.Trust Services: FFB is licensed to provide trust services to clients in California, Nevada and Hawaii. Those services, which consist primarily of themanagement of trust assets, complement the investment advisory and wealth management services that FFA offers to our clients and, as a result, provide uswith cross-selling opportunities. At December 31, 2018, trust AUM totaled $742 million.Insurance Services: Through FFIS, we offer life insurance products provided by unaffiliated insurance carriers from whom we collect a brokeragefee.Wealth Management Products and ServicesFFA is a fee-based investment advisor which provides investment advisory and wealth management services primarily for individuals and theirfamilies, family businesses and other affiliated organizations (including public and closely-held corporations, family foundations and private charitableorganizations). Through FFA, we provide clients with personalized services designed to enable them to reach their personal and financial goals bycoordinating our investment advisory and wealth management services with risk management and estate and tax planning services that are provided byoutside service providers, for which we do 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 management fees charged as a percentage of the assets managed, with tiered pricing for larger accounts.Our investment advisory and wealth management team strives to create diversified investment portfolios for its clients that are individuallydesigned, monitored and adjusted based on the discipline of fundamental investment analysis. We focus on creating investment portfolios that arecommensurate with a client’s objectives, risk tolerance and time horizon, using traditional investments such as individual stocks and bonds and mutualfunds. We also provide comprehensive and ongoing advice and coordination regarding estate planning, retirement planning and charitable and businessownership issues.AUM at FFA has grown at a compound annual growth rate of 5% over the four year period ending December 31, 2018. 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.We do not provide custodial services for our clients through FFA. Instead, client investment accounts are maintained under custodial arrangementswith large, well established brokerage firms, either directly or through FFB. However, we notify our clients that they are not obligated to use those servicesand that they are free to select securities brokerage firms and custodial service providers of their own choosing. We have 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 wealth warrants the more personalized and expansive breadth of financial services that we are able to provide in exchange fora 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 are entitled tocontinue to receive these fees for as long as we continue to provide services to the referral client. These referral agreements do not require the client tomaintain their assets at the custodial firm and are fully disclosed to the client prior to our providing services to them.CompetitionThe banking and investment advisory and wealth management businesses in California, Nevada and Hawaii, generally, and in our 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 our banking markets. Those banks, or their affiliates, may alsooffer investment advisory and wealth management services. We also compete with large, well known banking and wealth management firms, including CityNational, First Republic, Northern Trust and Boston Private. Those banks and investment advisory and wealth management firms generally have muchgreater financial and capital resources than we do and as a result of their ability to conduct extensive advertising campaigns and their relatively long historiesof operations in our markets, are generally better known than us. In addition, by virtue of their greater total capitalization, the large banks have substantiallyhigher lending limits than we do, which enables them to make much larger loans and to offer loan products that we are not able to offer to our clients. 6Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.We compete with these much larger banks and investment advisory 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, dueto costs involved or their “one size fits all” approaches to providing financial services to their clients. We believe that our principal competitive advantage isour ability to offer our services through one integrated platform, enabling us to provide our clients with the efficiencies and benefits of dealing with acohesive group working together to assist our clients to meet their personal investment and financial goals. We believe that only the largest financialinstitutions in our area provide similar integrated platforms of products and services, which they sometimes reserve for their wealthiest and institutionalclients. In addition, while we also compete with many local and regional banks and numerous local and regional investment advisory and wealthmanagement firms, we believe that only a very few of these banks offer investment advisory or wealth management services and that a very few of theseinvestment advisory and wealth management firms offer banking services and, therefore, these competitors are not able to provide such an integrated platformof comprehensive financial services to their clients. This enables us to compete effectively for clients who are dissatisfied with the level of service provided atlarger financial institutions, yet are not able to receive an integrated platform of comprehensive financial services from other regional or local financialservices organizations.While we provide our clients with the convenience of technological access services, such as remote deposit capture, internet banking and mobilebanking, we compete primarily by providing a high level of personal service. As a result, we do not try to compete exclusively on pricing. However, becausewe are located in a highly competitive market place and because we are seeking to grow our businesses, we attempt to maintain our pricing in line with ourprincipal competitors.Supervision and RegulationFederal and state laws extensively regulate bank holding companies and banks. This regulation is intended primarily for the protection ofdepositors, customers and the FDIC’s deposit insurance fund and is not for the benefit of our stockholders. Set forth below are summary descriptions of thematerial laws and regulations that affect or bear on our operations. The summaries are not intended, and do not purport, to be complete and are qualified intheir entirety by reference to the described laws and regulations.Bank Holding Company RegulationFirst Foundation Inc. is a registered bank holding company subject to regulation under the Bank Holding Company Act of 1956, as amended (the“Holding Company Act”). Pursuant to the Holding Company Act, we are subject to supervision and periodic examination by, and are required to file periodicreports with the Federal Reserve.As a bank holding company, we are allowed to engage, directly or indirectly, only in banking and other activities that the Federal Reserve hasdetermined, 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. Businessactivities that the Federal Reserve has designated as being closely related to banking include the provision of investment advisory, securities brokerage,insurance agency and data processing services, among others. A bank holding company meeting certain eligibility requirements may elect to qualify as a“financial holding company,” allowing it and its non-bank affiliated companies to engage in a broader range of financial activities including securitiesunderwriting, dealing and market making; sponsoring mutual funds and investment companies; engaging in insurance underwriting; and engaging inmerchant banking activities. We have not elected to be a financial holding company.Under Federal Reserve regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiarybanks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the Federal Reserve’s policy that a bank holding company, inserving as a source of strength to its subsidiary banks, should stand ready to use available resources to provide adequate capital funds to its subsidiary banksduring periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources forassisting its subsidiary banks. For that reason, among others, the Federal Reserve requires all bank holding companies to maintain capital at or above certainprescribed levels. A bank holding company’s failure to meet these requirements will generally be considered by the Federal Reserve to be an unsafe andunsound banking practice or a violation of the Federal Reserve’s regulations or both, which could lead to the imposition of restrictions (including restrictionson growth) on, or a regulatory enforcement order against, the bank holding company.Additionally, among its powers, the Federal Reserve may require any bank holding company to terminate an activity or terminate control of, orliquidate or divest itself of, any subsidiary or affiliated company that the Federal Reserve determines constitutes a significant risk to the financial safety,soundness or stability of the bank holding company or any of its banking subsidiaries. The Federal Reserve also has the authority to regulate aspects of abank holding company’s debt. Subject to certain exceptions, bank holding companies also are required to file written notice and obtain approval from theFederal Reserve prior to purchasing or redeeming their common stock or other equity securities. A bank holding company and its non-banking subsidiariesalso are prohibited from implementing so-called tying arrangements whereby clients may be required to use or purchase services or products from the bankholding company or any of its non-bank subsidiaries in order to obtain a loan or other services from any of the holding company’s subsidiary banks. 7Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Because FFB is a California state chartered bank, the Company is deemed to be a bank holding company within the meaning of Section 1280 ofthe California Financial Code. As such, we are subject to examination by, and may be required to file reports with, the DBO.Regulation of First Foundation BankFFB is subject to primary supervision, periodic examination and regulation by the FDIC, which is its primary federal banking regulator, and theDBO, 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 can determine the extent of supervisory control to which a bank will be subject by its federal and state bank regulators. These laws andregulations 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 and limits on loans and investments that a bank may make; •the borrowings that a bank may incur; •the opening of branch offices; •the rate at which it may grow its assets and business; •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.California law permits state chartered commercial banks to engage in any activity permissible for national banks. Those permissible activitiesinclude conducting many so-called “closely related to banking” or “nonbanking” activities either directly or through their operating subsidiaries.Acquisition of Control of a Bank Holding Company or a BankAs a bank holding company, we must obtain the prior approval of the Federal Reserve to acquire more than five percent of the outstanding sharesof voting securities or substantially all of the assets, by merger or purchase, of (i) any bank or other bank holding company and (ii) any other entities engagedin banking-related businesses or that provide banking-related services. In addition, FFB must obtain the prior approval of the FDIC and the DBO beforeacquiring or merging with any other depository institution. Capital Requirements Applicable to Banks and Bank Holding CompaniesIn December 2010, the International Basel Committee on Banking Supervision issued a new set of international guidelines for determiningregulatory capital, known as “Basel III”. In 2012, the federal bank regulatory agencies adopted rules (the “New Capital Rules”) establishing a newcomprehensive capital framework for U.S. banking organizations. The New Capital Rules implement Basel III and certain provisions of the Dodd-Frank WallStreet Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). The New Capital Rules substantially revised the risk-based capital requirementsapplicable to U.S. banking organizations, including the Company and FFB, from the prior U.S. risk-based capital rules, redefined the components of capitaland addressed other issues affecting the capital ratios applicable to banking organizations. The New Capital Rules also replaced the existing approach usedin risk-weighting of a banking organization’s assets with a more risk-sensitive approach. The New Capital Rules became effective for the Company and FFBon 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 Tier 1capital consists of CET-1 and “Additional Tier 1 capital” instruments meeting specified requirements, and (iii) make most deductions and adjustments toregulatory capital measures applicable to CET-1 and not to the other components of capital, and expanded the scope of the deductions and adjustments fromcapital compared to the prior capital rules, thus potentially requiring banking organizations to achieve and maintain higher levels of CET-1 in order to meetminimum capital ratios. 8Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.The New Capital Rules prescribe a standardized approach for calculating risk-weighted assets depending on the nature of assets, generally rangingfrom 0% for U.S. Government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of assetcategories. The New Capital Rules also introduce a “capital conservation buffer” that is designed to absorb losses during periods of economic stress. If abanking organization does not maintain a capital conservation buffer consisting of an addition 2.5% of CET-1 on top of the minimum risk-weighted assetratio, it will face constraints on dividends, equity repurchases and executive compensation, depending on the amount of the shortfall. The capitalconservation buffer was phased in beginning on January 1, 2016 at 0.625%, and increased by 0.625% on each subsequent January 1, until reaching 2.5% onJanuary 1, 2019.Under the New Capital Rules, the minimum capital ratios (including the applicable increment of the capital conservation buffer) applicable to theCompany and FFB as of January 1, 2018 were as follows:CET-1 to risk-weighted assets 6.375%Tier 1 capital (i.e., CET-1 plus Additional Tier 1) to risk-weighted assets 7.875%Total capital (i.e., Tier 1 plus Tier 2) to risk-weighted assets 9.875%Tier 1 capital-to-average consolidated assets as reported on consolidated financial statements(1) 4.000% (1)Commonly referred to as a banking institution’s “leverage ratio”.As of January 1, 2019, the above ratios (other than the leverage ratio) were increased by 0.625% to 7.0%, 8.5% and 10.5%, respectively. Includingthe capital conservation buffer which was fully phased in on January 1, 2019, the New Capital Rules require most bank holding companies and banks,including the Company and FFB, to meet the following risk-based capital requirements (i) a minimum CET-1-to-risk-weighted asset ratio of at least 7.0%(4.5% plus the 2.5% capital conservation buffer), (ii) a Tier 1 capital-to-risk-weighted asset ratio to 8.5% (6.0% plus the capital conservation buffer) and (iii) Total capital-to-risk weighted asset ratio to 10.5% (8.0% plus the capital conservation buffer).In addition, the New Capital Rules provide for a number of deductions from and adjustments to CET-1. These include, for example, therequirement that mortgage servicing rights, deferred tax assets dependent upon future taxable income, and significant investments in common equity issuedby nonconsolidated 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. While the New Capital Rules require the impact of certain items of Accumulated Other Comprehensive Income (“AOCI”) tobe included in capital for purposes of determining regulatory capital ratios, most banking organizations, including the Company and FFB, were entitled tomake a one-time permanent election to continue to exclude these items from capital. In 2015, we elected to continue this exclusion.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 1 capital, subject to a limit of 25% of tier 1 capital elements.Prompt Corrective ActionThe Federal Deposit Insurance Corporation Improvement Act of 1991 ( “FDICIA”), established a framework for regulation of federally insureddepository institutions, including banks, and their parent holding companies and other affiliates, by their federal banking regulators. Among other things,FDICIA requires the relevant federal banking regulator to take “prompt corrective action” with respect to a depository institution if that institution does notmeet certain capital adequacy standards, including requiring the prompt submission by that bank of an acceptable capital restoration plan if its bankregulator 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.FDICIA regulations implementing the prompt corrective action framework, which were revised to reflect the New Capital Rules effective January 1,2015, establish minimum capital requirements for five capital categories. An insured depository institution’s capital category depends upon whether itscapital levels meet these capital thresholds and potentially other determinations of the institution’s primary federal banking regulator. These regulationsprovide that a bank would be classified as: “well capitalized” if it had a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of8.0% or greater, a CET-1 ratio of 6.5% or greater, and a Tier 1 leverage ratio of 5.0% or greater, and was not subject to any order or written directive by anysuch regulatory 9Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.agency to meet and maintain a specific capital level for any capital measure; “adequately capitalized” if it had a total risk-based capital ratio of 8.0% orgreater, a Tier 1 risk-based capital ratio of 6.0% or greater, a CET-1 ratio of 4.5% or greater and a Tier 1 leverage ratio of 4.0% or greater; “undercapitalized”if it had a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a CET-1 ratio of less than 4.5% and a Tier 1leverage ratio of less than 4.0%; “significantly undercapitalized” if it had a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio ofless than 4.0%, a CET-1 ratio of less than 3.0% or a Tier 1 leverage ratio of less than 3.0%; and “critically undercapitalized” if its tangible equity was equal toor less than 2.0% of average quarterly tangible assets. A bank that is classified as well-capitalized, adequately capitalized or undercapitalized based on itscapital levels may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for ahearing, determines that an unsafe or unsound condition or practice warrants such treatment. A bank’s capital classification affects the frequency of examinations of the bank by its primary federal bank regulatory agency, the ability of thebank to engage in certain activities and the deposit insurance premiums that are payable by the bank. Under FDICIA, the federal banking regulators arerequired to conduct a full-scope, on-site examination of every bank with more than $3.0 billion in assets at least once every 12 months. An undercapitalized bank is generally prohibited from paying dividends or management fees to its holding company. In addition, anundercapitalized bank that fails to submit, or fails to obtain the approval by its federal banking regulator of a capital restoration plan will be treated as if it is“significantly undercapitalized.” In that event, the bank’s federal banking regulator may impose a number of additional requirements and restrictions on thebank, including orders or requirements (i) to sell sufficient voting stock to become “adequately capitalized,” (ii) to reduce its total assets, and (iii) cease thereceipt of deposits from correspondent banks. “Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator. If anundercapitalized bank is a subsidiary of a bank holding company, then, for its capital restoration plan to be approved, the bank’s parent holding companymust guarantee that the bank will comply with, and provide assurances of the performance by the bank of, its capital restoration plan. Under such a guaranteeand assurance of performance, if the bank fails to comply with its capital restoration plan, the parent holding company may become subject to liability forsuch 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, or (ii) the amount that isnecessary (or would have been necessary) to bring the bank into compliance with all applicable capital standards as of the time it failed to comply with theplan.If a bank is classified as “significantly undercapitalized” or “critically undercapitalized,” its federal banking regulator would be required to takeone or more prompt corrective actions that would, among other things require the bank to (i) raise additional capital by means of sales of common stock ornonredeemable preferred shares, (ii) improve its management, (iii) limit the interest rates it may pay on deposits, (iv) altogether prohibit transactions by thebank with its affiliates, (v) terminate certain activities that pose undue or unreasonable risks, and (vi) restrict the compensation being paid to its executiveofficers. If a bank is classified as critically undercapitalized, FDICIA requires the bank to be placed into conservatorship or receivership within 90 days,unless its federal banking regulatory agency determines that there are other measures that would enable the bank, within a relatively short period of time, toincrease its capital in an amount sufficient to improve its capital classification under the prompt corrective action framework.Safety and Soundness StandardsBanking institutions may be subject to potential enforcement actions by the federal banking regulators for unsafe or unsound practices or forviolating any law, rule, regulation, or any condition imposed in writing by its primary federal banking regulatory agency or any written agreement with thatagency. The federal banking agencies have adopted guidelines designed to identify and address potential safety and soundness concerns that could, if notcorrected, lead to deterioration in the quality of a bank’s assets, liquidity or capital. Those guidelines set forth operational and managerial standards relatingto 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, the federal banking agencies have adopted safety and soundness guidelines with respect to the quality of loans and other assets ofinsured depository institutions. These guidelines provide standards for establishing and maintaining a system to identify problem loans and other problemassets and to prevent those assets from deteriorating. Under these standards, an FDIC-insured depository institution is expected to conduct periodic assetquality reviews to identify problem loans and any other problem assets, estimate the inherent losses in those loans and other assets and establish reserves thatare sufficient to absorb those estimated losses; compare problem loans and other problem asset totals to capital; take appropriate corrective action to resolveproblem loans and other problem assets; consider the size and potential risks of material asset concentrations; and provide periodic quality reports withrespect to their loans and other assets which provide adequate information for the bank’s management and the board of directors to assess the level of risk toits loans and other assets. 10Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.These guidelines also establish standards for evaluating and monitoring earnings and for ensuring that earnings are sufficient for the maintenanceof adequate capital and reserves.Potential Regulatory Enforcement ActionsIf, as a result of an examination of a bank holding company or a bank, its federal banking regulatory agency, determined that the financialcondition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of its operations had become unsatisfactory or that thebank or its management was in violation of any law or regulation, that agency would have the authority to take a number of different remedial actions as itdeems appropriate under the circumstances. These actions include the power to enjoin any “unsafe or unsound” banking practices; to require that affirmativeaction be taken to correct any conditions resulting from any violation of law or unsafe or unsound practice; to issue an administrative order that can bejudicially enforced; to require that it increase its capital; to restrict its growth; assess civil monetary penalties against the it or its officers or directors; toremove officers and directors of the bank; and if the federal agency concludes that such conditions at the bank cannot be corrected or there is an imminentrisk of loss to depositors, to terminate a bank’s deposit insurance, which in the case of a California state chartered bank would result in revocation of itscharter and require it to cease its banking operations. Under California law the DBO has many of these same remedial powers with respect to FFB.Dividends and Stock RepurchasesIt is the policy of the Federal Reserve 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 a Federal Reserve policy that bank holding companies should not maintain dividend levels that undermine theirability to be a source of financial strength for their banking subsidiaries. Additionally, the Federal Reserve has indicated that bank holding companies shouldcarefully review their dividend policies and has discouraged dividend payment ratios that are at maximum allowable levels unless both asset quality andcapital are very strong. Similar Federal Reserve policies and limitations apply to a bank holding company’s repurchase of its capital stock.Cash dividends from FFB are one of the principal sources of cash (in addition to any cash dividends that might be paid to us by FFA) that isavailable to the Company for its operations and to fund any cash dividends or stock repurchases that our board of directors might declare or approve in thefuture. The Company is a legal entity separate and distinct from FFB and FFB is subject to various statutory and regulatory restrictions on its ability to paycash dividends to the Company. Under the California law, a bank’s ability to pay cash dividends to us is limited to the lesser of: (i) the bank’s retainedearnings or (ii) the bank’s income for its last three fiscal years (less any distributions to shareholders made during such period). However, with the priorapproval of the DBO, a bank may pay cash dividends in an amount not to exceed the greatest of the: (1) retained earnings of the bank; (2) net income of thebank for its last fiscal year; or (3) net income of the bank for its current fiscal year. In addition, under FDIC regulations, FFB is generally prohibited frompaying cash dividends in amounts that would cause FFB to become undercapitalized. Additionally, the FDIC and the DBO have the authority to prohibitFFB from paying cash dividends, if either of those agencies deems 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.Single Borrower Loan LimitationsWith certain limited exceptions, the maximum amount of unsecured obligations that any borrower (including certain related entities) may owe to aCalifornia state bank at any one time may not exceed 15% of the sum of the bank’s shareholders’ equity, allowance for loan and lease losses, capital notesand debentures. The combined secured and unsecured obligations of any borrower may not exceed 25% of the sum of the bank’s shareholders’ equity,allowance for loan and lease losses, capital notes and debentures.Deposit InsuranceThe deposits of FFB are insured by the FDIC’s Deposit Insurance Fund (the “DIF”), up to applicable limits. The Dodd-Frank Act permanentlyincreased the maximum deposit insurance amount for banks, savings institutions and credit unions to $250,000 per depositor and raised the minimum reserveratio of the DIF to 1.35%. The FDIC uses a risk-based assessment system that imposes insurance premiums based upon a risk matrix that takes into account a bank's CAMELSsupervisory rating. The risk matrix utilizes different risk categories distinguished by capital levels and 11Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.supervisory ratings. As a result of the Dodd-Frank Act, the base for insurance assessments is now consolidated average assets less average tangible equity.Assessment rates are calculated using formulas that take into account the risk of the institution being assessed. FDIC deposit insurance expense also includesFICO assessments related to outstanding FICO bonds.The FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe orunsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. The Company’smanagement is not aware of any practice, condition, or violation that might lead to the termination of its deposit insurance.Executive Compensation RestrictionsIn June 2010, the Federal Reserve and the FDIC issued comprehensive guidelines on incentive compensation policies intended to ensure that theincentive compensation policies of banking organizations do not undermine the safety and soundness of the organizations by encouraging excessive risk-taking. The guidelines apply to those employees of a banking organization that have the ability to materially affect the risk profile of a bankingorganization, either individually or as part of a group. Generally, the guidelines (i) prohibit incentive compensation that encourages risk-taking beyond theorganization’s ability to effectively identify and manage risks, (ii) prohibit incentive compensation arrangements that are inconsistent with effective internalcontrols and risk management, and (iii) mandate that incentive compensation programs be supported by strong corporate governance principles andpractices, including active and effective oversight by the banking organization’s board of directors. The federal banking regulatory agencies have theauthority to bring enforcement actions against a banking organization if the agency concludes that its incentive compensation arrangements, or related risk-management control or governance processes, pose an undue risk to the organization's safety and soundness and that the organization is not taking promptand effective measures to correct the deficiencies.In addition, the Dodd-Frank Act directs federal banking regulators to promulgate rules prohibiting incentive-based compensation arrangementsthat would encourage imprudent risk-taking by executives of depository institutions and their holding companies that have assets of more than $1.0 billion.Proposed rules were issued in 2011 but have not become final.In February 2014, the Company adopted an incentive compensation clawback policy. Among other things, the policy provides that, if any of theCompany’s previously published financial statements are restated due to material noncompliance with any financial reporting requirements under the federalsecurities laws, the Company will seek to recover the amount by which any incentive compensation paid in the previous three years to any executive officerexceeds the incentive compensation which the Company’s audit committee determines would have been paid to such executive officer had suchcompensation been determined on the basis of the restated financial statements.Federal Home Loan Bank SystemFFB is a member of the FHLB. Among other benefits, each regional Federal Home Loan Bank serves as a reserve or central bank for its memberswithin its assigned region and makes available loans or advances to its member banks. Each regional Federal Home Loan Bank is financed primarily from thesale of consolidated obligations of the overall Federal Home Loan Bank system. As an FHLB member, FFB is required to own a certain amount of capitalstock in the FHLB. At December 31, 2018, FFB was in compliance with the FHLB’s stock ownership requirement. Historically, the FHLB has paid dividendson its capital stock to its members.Restrictions on Transactions between FFB and the Company and its other AffiliatesFFB is subject to Sections 23A and 23B of, and Federal Reserve Regulation W under, the Federal Reserve Act, which impose restrictions on (i) anyextensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, the Company or any of its other subsidiaries; (ii) the purchase of orinvestments in Company stock or other Company securities; (iii) the taking of Company securities as collateral for the loans that FFB makes; (iv) thepurchase of assets from the Company or any of its other subsidiaries and (v) transactions between a bank and its financial subsidiaries, as well as otheraffiliates. These restrictions prevent the Company and any of its subsidiaries from obtaining borrowings or extensions of credit from FFB, unless theborrowings are secured by marketable obligations in designated amounts, and such secured loans and any investments by FFB in the Company or any of itssubsidiaries are limited, individually, to 10% of FFB’s capital and surplus (as defined by federal regulations), and in the aggregate are limited to 20%, ofFFB’s capital and surplus.The Dodd-Frank Act extends the application of Section 23A of the Federal Reserve Act to derivative transactions, repurchase agreements andsecurities lending and borrowing transactions that create credit exposure to an affiliate or an insider of a bank. Any such transactions with any affiliates mustbe fully secured. In addition, the exemption from Section 23A for transactions with financial subsidiaries has been eliminated. 12Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.California law also imposes restrictions with respect to transactions involving the Company and any other persons that may be deemed under thatlaw to control FFB.Regulatory Guidelines for Commercial Real Estate Loan ConcentrationsThe Federal Reserve and the FDIC have published guidelines that call for the adoption of heightened risk mitigation measures by insured bankswith a concentration of commercial real estate loans in its loan portfolio. The guidelines provide that a bank will be deemed to have a concentration ofcommercial real estate loans if (i) the total reported loans for construction, land development and other land represent 100% or more of the bank's totalcapital, or (ii) the total reported loans secured by multifamily and non-farm residential properties, plus loans for construction, land development and otherland, represent 300% or more of the bank’s total capital and the bank’s commercial real estate loan portfolio has increased by 50% or more during the prior36 months. If such a concentration exists, the guidelines call for the bank (x) to implement heightened risk assessment and risk management practices,including board and management oversight and strategic planning, (y) to implement and maintain stringent loan underwriting standards, and to use marketanalyses and stress testing tools to monitor the condition of the bank’s commercial real estate loan portfolio and to assess the impact that adverse economicconditions affecting the real estate markets could have on the bank’s financial condition and (z) if determined to be necessary on the basis of the results ofsuch stress tests, to increase its allowance for loan losses and its capital.Technology Risk Management and Consumer PrivacyFederal and state banking regulatory agencies have issued various policy statements focusing on the importance of technology risk managementand supervision in evaluating the safety and soundness of the banks they regulate. According to those policy statements, the use by banking organizations oftechnology-related products, services, processes and delivery channels, such as the internet, exposes them to a number of risks which include operational,compliance, security, privacy, and reputational risk. The banking regulators generally expect the banking organizations they regulate to prudently managetechnology-related risks as part of their comprehensive risk management policies in order to identify, monitor, measure and control risks associated with theuse of technology.Pursuant to the Gramm-Leach-Bliley Act (“GLBA”), the federal banking agencies have adopted rules and established standards to be followed inimplementing safeguards that are designed to ensure the security and confidentiality of customer records and information, protection against any anticipatedthreats or hazards to the security or integrity of such records and protection against unauthorized access to or use of such records or information in a way thatcould result in substantial harm or inconvenience to a customer. Among other requirements, these rules require each bank organization to implement acomprehensive written information security program that includes administrative, technical and physical safeguards relating to customer information. GLBAalso requires banking organizations to provide each of their customers with a notice of their privacy policies and practices and prohibits a bankingorganization from disclosing nonpublic personal information about a customer to nonaffiliated third parties unless the banking organization satisfies variousnotice and “opt-out” requirements and the customer has not chosen to opt out of the disclosure. Additionally, the federal banking agencies are authorized toissue regulations as necessary to implement those notice requirements and non-disclosure restrictions. Community Reinvestment ActThe Community Reinvestment Act (“CRA”) requires the federal banking regulatory agencies to evaluate the record of a bank in meeting the creditneeds of its local communities, including those of low and moderate income neighborhoods in its service area. A bank’s compliance with its CRAobligations is based on a performance-based evaluation system which determines the bank’s CRA ratings on the basis of its community lending andcommunity development performance. A bank may have substantial penalties imposed on it and generally will be required to take corrective measures in theevent it fails to meet its obligations under CRA. Federal banking agencies also may take compliance with CRA and other fair lending laws into accountwhen regulating and supervising other activities of a bank or its bank holding company. Moreover, when a bank or bank holding company files anapplication for approval to acquire a bank or another bank holding company, the federal banking regulatory agency reviewing the application will considerCRA assessment of the subsidiary bank or banks of the applicant bank holding company. A lower CRA rating may be the basis for requiring the applicant’sbank subsidiary to take corrective actions to improve its CRA performance as a condition to the approval of the acquisition or as a basis for denying theapplication altogether.Bank Secrecy Act and USA Patriot ActThe Company and the Bank are subject to the Bank Secrecy Act, as amended by the USA PATRIOT Act, which gives the federal governmentpowers to address money laundering and terrorist threats through enhanced domestic security measures, expanded surveillance powers and mandatorytransaction reporting obligations. For example, the Bank Secrecy Act and related regulations 13Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.require that we report currency transactions that exceed certain thresholds and transactions determined to be suspicious, establish due diligence requirementsfor accounts and take certain steps to verify customer identification when accounts are opened. The Bank Secrecy Act requires financial institutions todevelop and maintain a program reasonably designed to ensure and monitor compliance with its requirements, to train employees to comply with and to testthe effectiveness of the program. Any failure to meet the requirements of the Bank Secrecy Act can result in the imposition of substantial penalties and inadverse regulatory action against the offending bank. FFI and FFB have each adopted policies and procedures to comply with the Bank Secrecy Act.Consumer Laws and RegulationsThe Company and FFB are subject to a broad range of federal and state consumer protection laws and regulations prohibiting unfair or fraudulentbusiness practices, untrue or misleading advertising and unfair competition. Those laws and regulations include: •The Home Ownership and Equity Protection Act of 1994, which requires additional disclosures and consumer protections to borrowersdesigned 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, which requires banking institutions andfinancial services businesses to adopt practices and procedures designed to help deter identity theft, including developing appropriate fraudresponse programs, and provides consumers with greater control of their credit data. •The Truth in Lending Act which requires that credit terms be disclosed in a meaningful and consistent way so that consumers may comparecredit terms more readily and knowledgeably. •The Equal Credit Opportunity Act, which generally prohibits, in connection with any consumer or business credit transactions, discriminationon the basis of race, color, religion, national origin, sex, marital status, age (except in limited circumstances), or the fact that a borrower isreceiving 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, which includes a “fair lending” aspect that requires the collection and disclosure of data about applicantand borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes. •The Real Estate Settlement Procedures Act, which requires lenders to provide borrowers with disclosures regarding the nature and cost of realestate settlements and prohibits certain abusive practices, such as kickbacks. •The National Flood Insurance Act, which requires homes in flood-prone areas with mortgages from a federally regulated lender to have floodinsurance. •The Secure and Fair Enforcement for Mortgage Licensing Act of 2008, which requires mortgage loan originator employees of federallyinsured institutions to register with the Nationwide Mortgage Licensing System and Registry, a database created by the states to support thelicensing of mortgage loan originators, prior to originating residential mortgage loans.The Dodd-Frank Act also contains a variety of provisions intended to reform consumer mortgage practices. The provisions include (1) arequirement that lenders make a determination that at the time a residential mortgage loan is consummated the consumer has a reasonable ability to repay theloan and related costs, (2) a ban on loan originator compensation based on the interest rate or other terms of the loan (other than the amount of the principal),(3) a ban on prepayment penalties for certain types of loans, (4) bans on arbitration provisions in mortgage loans and (5) requirements for enhanceddisclosures in connection with the making of a loan. The Dodd-Frank Act also imposes a variety of requirements on entities that service mortgage loans. 14Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Consumer Financial Protection BureauThe Dodd-Frank Act created a new, independent federal agency, called the Consumer Financial Protection Bureau (the “CFPB”), which has beengranted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal CreditOpportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer FinancialPrivacy provisions of the GLBA and certain other statutes. The CFPB has examination and primary enforcement authority with respect to the compliance bydepository institutions with $10 billion or more in assets with federal consumer protection laws and regulations. Smaller institutions are subject to rulespromulgated by the CFPB, but continue to be examined and supervised by federal banking regulators for consumer compliance purposes. The CFPB hasauthority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products. The Dodd-Frank Act also(i) authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages, including a determination of the borrower’sability to repay, and (ii) will allow borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined bythe CFPB. The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal leveland, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal financial consumer protection laws andregulations.Volcker RuleIn December 2013, the federal bank regulatory agencies adopted final rules that implement a part of the Dodd-Frank Act commonly referred to asthe “Volcker Rule.” Under these rules and subject to certain exceptions, banking entities are restricted from engaging in activities that are consideredproprietary trading and from sponsoring or investing in certain entities, including hedge or private equity funds that are considered “covered funds.” Theserules became effective on April 1, 2014, although certain provisions are subject to delayed effectiveness under rules promulgated by the FRB. These newrules may require us to conduct certain internal analysis and reporting to ensure continued compliance. The Company held no investment positions atDecember 31, 2018 which were subject to the final rule.Regulation of First Foundation AdvisorsFFA is a registered investment advisor under the Investment Advisers Act and the SEC’s regulations promulgated thereunder. The InvestmentAdvisers Act imposes numerous obligations on registered investment advisors, 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 Employee Retirement Income Security Act of 1974(“ERISA”), and to regulations promulgated thereunder, insofar as it is a “fiduciary” under ERISA with respect to certain of its clients. ERISA and theapplicable provisions of the Code, impose certain duties on persons who are fiduciaries under ERISA, and prohibit certain transactions by the fiduciaries (andcertain other related parties) to such plans. The foregoing laws and regulations generally grant supervisory agencies broad administrative powers, includingthe power to limit or restrict FFA from conducting its business in the event that it fails to comply with such laws and regulations. Possible sanctions that maybe imposed in the event of such noncompliance include the suspension of individual employees, limitations on the business activities for specified periodsof time, revocation of registration as an investment advisor and/or other registrations, and other censures and fines. Changes in these laws or regulationscould have a material adverse impact on the profitability and mode of operations of FFI and its subsidiaries.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 regulations, 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 or modify our business strategy, limit our ability to pursue business opportunities or activities or alter the competitive balancebetween banks and non-bank financial service providers.EmployeesAs of December 31, 2018, the Company had approximately 482 full-time employees.Mergers and Acquisitions 15Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.We have completed five acquisitions since 2012. In June 2018, we completed the acquisition of PBB Bancorp, the holding company for PremierBusiness Bank. In November 2017, we completed the acquisition of Community 1st Bancorp, the holding company for Community 1st Bank. In December2016, we completed the acquisition of two branches located in Orange County, California from Pacific Western Bank. In June 2015, we completed theacquisition of Pacific Rim Bank. In August 2012, we completed the acquisition of Desert Commercial Bank.Available InformationThe Company’s annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments tothose reports filed or furnished pursuant to Section 13 (a) or 15 (d) of the Exchange Act are accessible for free at the Investor Relations section of our websiteat www.ff-inc.com as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. All websiteaddresses given in this report are for information only and are not intended to be an active link or to incorporate any website information into this report. Item 1A.Risk FactorsOur business is subject to a number of risks and uncertainties that could prevent us from achieving our business objectives and could hurt ourfuture financial performance and the price performance of our common stock. Such risks and uncertainties also could cause our future financial condition andfuture financial performance to differ significantly from our current expectations, which are described in the forward-looking statements contained in thisreport. Those risks and uncertainties, many of which are outside of our ability to control or prevent, include the following:Risks Related to 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. Loan losses necessitate loan charge-offs and write-downs inthe carrying values of a banking organization’s loans and, therefore, can adversely affect its results of operations and financial condition. Accordingly, ourresults 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. The risksof loan losses are exacerbated by economic recessions and downturns, or by other events that can lead to local or regional business downturns. If business andeconomic conditions weaken generally or specifically in the principal markets in which we do business, more of our borrowers may fail to perform inaccordance with the terms of their loans, in which event 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.Our allowance for credit losses may not be adequate to cover actual losses.In accordance with regulatory requirements and generally accepted accounting principles in the United States, we maintain an allowance for loanand lease losses (“ALLL”) to provide for loan and lease defaults and non-performance and a reserve for unfunded loan commitments, which, when combined,we refer to as the allowance for credit losses. Our allowance for credit losses may not be adequate to absorb actual credit losses, and future provisions forcredit losses could materially and adversely affect our operating results. Our allowance for credit losses is based on prior experience and an evaluation of therisks inherent in our then-current portfolio. The amount of future losses may also vary depending on changes in economic, operating and other conditions,including changes in interest rates that may be beyond our control, and these losses may exceed current estimates. Federal and state regulators, as an integralpart of their examination process, review our loans and leases and allowance for credit losses. While we believe our allowance for credit losses is appropriatefor the risk identified in our loan and lease portfolio, we cannot provide assurance that we will not further increase the allowance for credit losses, that it willbe sufficient to address losses, or that regulators will not require us to increase this allowance. Any of these occurrences could have a material adverse effecton our business, financial condition, results of operations and prospects.The FASB has recently issued an accounting standard update that will result in a significant change in how we recognize credit losses and mayhave a material impact on our results of operations, financial condition or liquidity.In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement ofCredit Losses on Financial Instruments. ASU 2016-13 requires banking organizations to determine the adequacy of their ALLL with an expected loss model,which is referred to as the current expected credit loss (“CECL”) model. Under the CECL model, banking organizations will be required to present certainfinancial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected.The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, andreasonable and 16Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to thebalance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which delays recognitionuntil it is probable a loss has been incurred. ASU 2016-13 is expected to be effective for public business entities for fiscal years after December 15,2019. CECL will change the manner in which we determine the adequacy of our ALLL. We are evaluating the impact the CECL model will have on ouraccounting, but we may recognize a one-time cumulative-effect adjustment to the ALLL as of the beginning of the first reporting period in which the newstandard is effective. We cannot yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on ourfinancial condition or results of operations. The federal banking regulators, including the Federal Reserve Board, have adopted a rule that gives a bankingorganization the option to phase in over a three-year period the day-one adverse effects of CECL on its regulatory capital.Our business and operations may be adversely affected in numerous and complex ways by economic conditions.Our businesses and operations, which primarily consist of lending money to customers in the form of loans, borrowing money from customers inthe form of deposits, investing in securities and investment management, are sensitive to general business and economic conditions in the United States. Ifthe United States economy weakens, our growth and profitability from our lending, deposit and investment operations could be constrained. Uncertaintyabout the federal fiscal policymaking process, the fiscal outlook of the federal government, and future tax rates is a concern for businesses, consumers andinvestors in the United States. In addition, economic conditions in foreign countries could affect the stability of global financial markets, which could hinderUnited States economic growth. Weak economic conditions may be characterized by deflation, fluctuations in debt and equity capital markets, a lack ofliquidity and/or depressed prices in the secondary market for loans, increased delinquencies on mortgage, consumer and commercial loans, residential andcommercial real estate price declines and lower home sales and commercial activity. The current economic environment is also characterized by interest ratesat historically low levels, which impacts our ability to attract deposits and to generate attractive earnings through our investment portfolio. All of thesefactors are detrimental to our business, and the interplay between these factors can be complex and unpredictable. Adverse economic conditions andgovernment policy responses to such conditions could have a material adverse effect on our business, financial condition, results of operations and prospects.Our banking, investment advisory and wealth management operations are geographically concentrated in California, Nevada and Hawaii,leading to significant exposure to those markets.Our business activities and credit exposure, including real estate collateral for many of our loans, are concentrated in California, Nevada andHawaii, as approximately 98% of the loans in our loan portfolio were made to borrowers who live and/or conduct business in those states. This geographicconcentration imposes risks from lack of geographic diversification. Difficult economic conditions, including state and local government deficits, in any ofCalifornia, Nevada or Hawaii may affect our business, financial condition, results of operations and future prospects, where adverse economic developments,among other things, could affect the volume of loan originations, increase the level of nonperforming assets, increase the rate of foreclosure losses on loansand reduce the value of our loans and loan servicing portfolio. Any regional or local economic downturn that affects California, Nevada or Hawaii orexisting or prospective borrowers or property values in such areas may affect us and our profitability more significantly and more adversely than ourcompetitors whose operations are less geographically concentrated.Changes in interest rates could reduce our net interest margins 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 on interest-earning assets, such as loans and investment securities, and the rates at which we pay interest on interest-bearing liabilities, such as deposits andborrowings. Interest rates are highly sensitive to many factors that are beyond our control, including (among others) general and regional and local economicconditions, the monetary policies of the Federal Reserve Board, bank regulatory requirements, competition from other banks and financial institutions and achange over time in the mix of our loans, investment securities, on the one hand, and on our deposits and other liabilities, on the other hand. Changes inmonetary policy will, in particular, influence the origination and market value of and the yields we can realize on loans and investment securities and theinterest we pay on deposits. Our net interest margins and earnings also could be adversely affected if we are unable to adjust our interest rates on loans anddeposits on a timely basis in response to changes in economic conditions or monetary policies. For example, if the rates of interest we pay on deposits,borrowings and other interest-bearing liabilities increase faster than we are able to increase the rates of interest we charge on loans or the yields we realize oninvestments and other interest-earning assets, our net interest income and, therefore, our earnings will decrease. In particular, the rates of interest we chargeon loans may be subject to longer fixed interest periods compared to the interest we must pay on deposits. On the other hand, increasing interest ratesgenerally lead to increases in net interest income; however, such increases also may result in a reduction in loan originations, declines in loan prepaymentrates 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, thereby offsetting either partially or totally the increases in net interest income resulting from the increase in interest rates.Additionally, we could be prevented from increasing the interest rates we charge on loans or from reducing the interest rates we offer on deposits due to“price” competition from other banks and financial 17Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.institutions with which we compete. Conversely, in a declining interest rate environment, our earnings could be adversely affected if the interest rates we areable to charge on loans or other investments decline more quickly than those we pay on deposits and borrowings.Changes in interest rates could increase our operating expenses.Customer service costs, which are reimbursements of costs incurred by our clients and are related primarily to our noninterest bearing demanddeposits, are impacted by changes in interest rates. In a rising interest rate environment, the amounts we make available for reimbursement to our clientsincreases, resulting in higher costs to us. The amount of the reimbursement and the impact of interest rate increases may vary by client. Real estate loans represent a high percentage of the loans we make, making our results of operations vulnerable to downturns in the realestate market.At December 31, 2018, loans secured by multifamily and commercial real estate represented approximately 66% of our outstanding loans. Therepayment of such loans is highly dependent on the ability of the borrowers to meet their loan repayment obligations to us, which can be adversely affectedby economic downturns that can lead to (i) declines in the rents and, therefore, in the cash flows generated by those real properties on which the borrowersdepend to fund their loan payments to us, and (ii) decreases in the values of those real properties, which make it more difficult for the borrowers to sell thosereal properties for amounts sufficient to repay their loans in full. As a result, our operating results are more vulnerable to adverse changes in the real estatemarket than other financial institutions with more diversified loan portfolios and we could incur losses in the event of changes in economic conditions thatdisproportionately affect the real estate markets.Liquidity 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, FHLBborrowings, sales of loans or investment securities held for sale, repayments by clients of loans we have made to them, and the proceeds from sales by us ofour equity securities or from borrowings that we may obtain. If our ability to obtain funds from these sources becomes limited or the costs of those fundsincrease, whether due to factors that affect us specifically, including our financial performance, or due to factors that affect the financial services industry ingeneral, including weakening economic conditions or negative views and expectations about the prospects for the financial services industry as a whole,then our ability to grow our banking and investment advisory and wealth management businesses would be harmed, which could have a material adverseeffect on our business, financial condition, results of operations and prospects.We may not be able to maintain a strong core deposit base or other low-cost funding sources.We depend on checking, savings and money market deposit account balances and other forms of customer deposits as our primary source offunding for our lending activities. Future growth in our banking business will largely depend on our ability to maintain and grow a strong deposit base. Thereis no assurance that we will be able to grow and maintain our deposit base. The account and deposit balances can decrease when customers perceivealternative investments, such as the stock market or real estate, as providing a better risk/return tradeoff. If customers move money out of bank deposits andinto investments (or similar deposit products at other institutions that may provide a higher rate of return), we could lose a relatively low cost source of funds,increasing our funding costs and reducing our net interest income and net income. Additionally, any such loss of funds could result in lower loanoriginations, which could materially negatively impact our growth strategy.Our eight largest deposit clients account for 21% of our total deposits.As of December 31, 2018, our eight largest bank depositors accounted for, in the aggregate, 21% of our total deposits. As a result, a materialdecrease in the volume of those deposits by a relatively small number of our depositors could reduce our liquidity, in which event it could became necessaryfor us to replace those deposits with higher-cost deposits, the sale of securities or FHLB borrowings, which would adversely affect our net interest incomeand, therefore, our results of operations.Although we plan to grow 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 to takeadvantage of opportunities to acquire other banks. However, there is no assurance that we will succeed in doing so. Our ability to execute on our strategy toacquire other banks may require us to raise additional capital and to increase FFB’s capital position to support the growth of our banking franchise, and willalso depend on market conditions, over which we have no 18Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.control. Moreover, any bank acquisitions will require the approval of our bank regulators and there can be no assurance that we will be able to obtain suchapprovals on acceptable terms, if at all.Our acquisition strategy subjects us to risks.Certain events may arise after the date of an acquisition, or we may learn of certain facts, events or circumstances after the closing of an acquisition,that may affect our financial condition or performance or subject us to risk of loss. These events include, but are not limited to: our success in integrating theoperations, retaining key employees and customers, achieving anticipated synergies, meeting expectations and otherwise realizing the undertaking'santicipated benefits; litigation resulting from circumstances occurring at the acquired entity prior to the date of acquisition; loan downgrades and credit lossprovisions resulting from underwriting of certain acquired loans determined not to meet our credit standards; personnel changes that cause instability withina department; delays in implementing new policies or procedures or the failure to apply new policies or procedures; and other events relating to theperformance of our business. In addition, if we determined that the value of an acquired business had decreased and that the related goodwill was impaired, animpairment of goodwill charge to earnings would be recognized. Acquisitions involve inherent uncertainty and we cannot determine all potential events,facts and circumstances that could result in loss or increased costs or give assurances that our due diligence or mitigation efforts will be sufficient to protectagainst any such loss or increased costs.Acquiring other banks, businesses, or branches involves various other risks commonly associated with acquisitions, including, among other things,potential disruptions to our business, potential diversion of our management’s time and attention, difficulty in estimating the value of the target companyand potential changes in banking or tax laws or regulations that may affect the target company.Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of our tangible book valueand net income per common share may occur in connection with any future transaction. Furthermore, failure to realize the expected revenue increases, costsavings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on our business,financial condition and results of operations.Growing our banking business 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 and now have 20 branch offices and 2 loanproduction offices in California, Nevada and Hawaii. We plan to continue to grow our banking business both organically and through acquisitions of otherbanks. However, the implementation of our growth strategy poses a number of risks for us, including: •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 we donot realize anticipated cost savings or if we incur unanticipated costs in integrating the acquired banks into our operations or if a substantialnumber of the clients of any of the acquired banks move their banking business to our competitors; •the risk that any newly established offices will not generate revenues in amounts sufficient to cover the start-up costs of those offices, whichwould reduce our earnings; •the risk that such expansion efforts will divert management time and effort from our existing banking operations, which could adversely affectour 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 investments that our existing stockholders have in the shares of our common stock that they own and in their respectivepercentage ownership interests they have in the Company.We may not have the ability to attract capital necessary to maintain regulatory ratios and fund growth.We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments andbusiness needs, particularly if our asset quality or earnings were to deteriorate. Our ability to raise additional capital, if needed, will depend on several things,especially conditions in the capital markets at that time, that are outside of our control, as well as our own financial performance. Economic conditions andthe loss of confidence in financial institutions may increase our cost of funds and limit our access to some customary sources of capital. We cannot provideassurances that such capital will be available on acceptable terms or at all. Any occurrence that may limit our access to the capital markets, such as a declinein the confidence of debt purchasers, our depositors, or counterparties participating in the capital markets may adversely affect our capital costs, ability toraise capital, and liquidity. Moreover, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking toraise capital which, in turn, would require that we compete with those other institutions for investors. 19Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our financial condition, results ofoperations and liquidity.New lines of business or new products and services may subject us to additional risks.From time to time, we may implement new lines of business or offer new products and services within existing lines of business. There aresubstantial risks and uncertainties associated with these efforts. We may invest significant time and resources in developing and marketing new lines ofbusiness and/or new products and services. Initial timetables for the introduction and development of new lines of business and/or new products or servicesmay not be achieved and price and profitability targets may not prove feasible or may be dependent on identifying and hiring a qualified person to lead thedivision. In addition, existing management personnel may not have the experience or capacity to provide effective oversight of new lines of business and/ornew products and services.External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successfulimplementation of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have asignificant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementationof new lines of business or new products or services could have a material adverse effect on our business, results of operations, financial condition andprospects.A reduction in demand for our products and our failure to adapt to such a reduction could adversely affect our business, results of operationsand financial condition.The demand for the products that we offer may be reduced due to a variety of factors, such as demographic patterns, changes in customerpreferences or financial conditions, regulatory restrictions that decrease customer access to particular products, or the availability of competing products.Should we fail to adapt to significant changes in our customers’ demand for, or access to, our products, our revenues could decrease significantly and ouroperations could be harmed. Even if we do make changes to existing products or introduce new products to fulfill customer demand, customers may resistsuch changes or may reject such products. Moreover, the effect of any product change on the results of our business may not be fully ascertainable until thechange has been in effect for some time, and, by that time, it may be too late to make further modifications to such product without causing further harm toour business, results of operations, and financial condition.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 in markets where the banking business is highly competitive and is dominated by large multi-state and in-state banks with operations and offices covering wide geographic areas. We also compete with other financial service businesses, including investmentadvisory and wealth management firms, mutual fund companies, financial technology companies, and securities brokerage and investment banking firms thatoffer competitive banking and financial products and services as well as products and services that we do not offer. Larger banks and many of those otherfinancial service organizations have greater financial and marketing resources than we do that enable them to conduct extensive advertising campaigns andto shift resources to regions or activities of greater potential profitability. They also have substantially more capital and higher lending limits than we do,which enable them to attract larger clients and offer financial products and services that we are unable to offer, putting us at a disadvantage in competing withthem for loans and deposits and investment management clients. If we are unable to compete effectively with those banking or other financial servicesbusinesses, we could find it more difficult to attract new and retain existing clients and our net interest margins, net interest income and investmentmanagement advisory fees could decline, which would materially adversely affect our business, results of operations and prospects, and could cause us toincur 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 retaining existing and attracting new investment management clients, our business, financial condition, results of operations and prospects maybe materially and adversely 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, David DePillo, President of FFB, John Hakopian, President of FFA, and John Michel, Chief Financial Officer of FFI, FFBand FFA, as well as a number of other key management personnel. Our future success also will depend, in part, on our ability to retain our existing, andattract additional, qualified private banking officers, relationship managers and investment advisory personnel. Competition for such personnel is intense. Ifwe are not successful in retaining and 20Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.attracting key personnel, our ability to retain existing clients or attract new clients could be adversely affected and our business, financial condition, resultsof operations or prospects could be significantly harmed.We are required to make significant estimates and assumptions in the preparation of our financial statements and our estimates andassumptions may not be accurate.The preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States ofAmerica requires our management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures ofcontingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expense during the reportingperiods. Critical estimates are made by management in determining, among other things, the allowance for loan losses, amounts of impairment of assets, andvaluation of income taxes. If our underlying estimates and assumptions prove to be incorrect, our financial condition and results of operations may bematerially adversely affected.The fair value of our investment securities can fluctuate due to factors outside of our control.Factors beyond our control can significantly influence and cause adverse changes to occur in the fair values of securities in our investmentsecurities portfolio. These factors include, but are not limited to, rating agency actions in respect of the investment securities in our portfolio, defaults by theissuers of such securities, concerns with respect to the enforceability of the payment or other key terms of such securities, changes in market interest rates andcontinued instability in the capital markets. Any of these factors, as well as others, could cause other-than-temporary impairments and realized and/orunrealized 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 an impairment of a security is other-than-temporary usuallyrequires complex, subjective judgments, which could subsequently prove to have been wrong, regarding the future financial performance and liquidity of theissuer of the security, the fair value of any collateral underlying the security and whether and the extent to which the principal of and interest on the securitywill ultimately be paid in accordance with its payment terms.A loss or material reduction of access to securitization markets for multifamily loans may adversely impact our business model, profitabilityand growth.We have sold multifamily loans through the securitization market from time to time and may seek to do so in the future. The securitization market,along with credit markets in general, experienced unprecedented disruptions during the economic downturn from 2008 to 2010. Although market conditionshave since improved, for a number of years following the economic downturn, certain issuers experienced increased risk premiums while there was arelatively lower level of investor demand for certain asset-backed securities (particularly those securities backed by nonprime collateral). In addition, the riskof volatility surrounding the global economic system and uncertainty surrounding regulatory reforms such as the Dodd-Frank Act continue to createuncertainty around access to the capital markets. The shift of power in the United States government following the 2016 election increased uncertainty as thecurrent administration seeks to unwind or reverse regulatory reforms impacting the financial industry which were put in place during the prioradministration. As a result, there can be no assurance that we will continue to be successful in selling multifamily loans through the securitization market.Adverse changes in the securitization market generally could materially adversely affect our ability to securitize loans on a timely basis or upon termsacceptable to us. This could increase our cost of funding, reduce our margins or cause us to hold assets until investor demand improves.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.Fraudulent activity, breaches of our information security systems, and cybersecurity attacks could have a material adverse effect on ourbusiness, financial condition, results of operations or future prospects.As a financial institution, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that may becommitted against us or our clients and that may result in financial losses or increased costs to us or our clients, disclosure or misuse of confidentialinformation belonging to us or personal or confidential information belonging to our clients, misappropriation of assets, litigation, or damage to ourreputation. Fraudulent activity may take many forms, including check “kiting” or fraud, electronic fraud, wire fraud, “phishing” and other dishonest acts.Information security breaches and cybersecurity-related 21Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.incidents may include fraudulent or unauthorized access to data processing or data storage systems used by us or by our clients, denial or degradation ofservice attacks, and malware or other cyber-attacks. The financial services industry has experienced increases in electronic fraudulent activity, securitybreaches and cyber-attacks, including in the commercial banking sector, with cyber-criminals targeting commercial bank and brokerage accounts on anincreasing basis. Moreover, in recent periods, several governmental agencies and large corporations, including financial service organizations, creditreporting agencies and retail companies, have suffered major data breaches, in some cases exposing not only their confidential and proprietary corporateinformation, but also sensitive financial and other personal information of their clients or customers and their employees or other third parties, and subjectingthose agencies and corporations to potential fraudulent activity and their clients, customers and other third parties to identity theft and fraudulent activity intheir credit card and banking accounts. Therefore, security breaches and cyber-attacks can cause significant increases in operating costs, including the costsof compensating clients and customers for any resulting losses they may incur and the costs and capital expenditures required to correct the deficiencies inand strengthen the security of data processing and storage systems.Although we invest in systems and processes that are designed to detect and prevent security breaches and cyber-attacks and we conduct periodictests of our security systems and processes, there is no assurance that we will succeed in anticipating or adequately protecting against or preventing allsecurity breaches and cyber-attacks from occurring due to a number of possible causes, many of which will be outside of our control, including the changingnature and increasing frequency of such attacks, the increasing sophistication of cyber-criminals, and possible weaknesses that go undetected in our datasystems notwithstanding the testing we conduct of those systems. If we are unable to detect or prevent a security breach or cyber-attack from occurring, thenwe and our clients could incur losses or damages; and we could sustain damage to our reputation, lose clients and business, suffer disruptions to our businessand incur increased operating costs, and be exposed to additional regulatory scrutiny or penalties and to civil litigation and possible financial liability, anyof which could have a material adverse effect on our business, financial condition, results of operations and prospects.We rely on communications, information, operating and financial control systems technology and related services from third-party serviceproviders and there can be no assurance that we will not 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 of, or security breaches in, these systems couldresult in failures or interruptions in our operations or in the client services we provide. Additionally, interruptions in service and security breaches coulddamage our reputation, lead existing clients to terminate their business relationships with us, make it more difficult for us to attract new clients and subject usto additional regulatory scrutiny and possibly financial liability, any of which could have a material adverse effect on our business, financial condition,results of operations and prospects.The Company could be subject to tax audits, challenges to its tax positions, or adverse changes or interpretations of tax laws.The Company is subject to federal and applicable state income tax laws and regulations. Income tax laws and regulations are often complex andrequire significant judgment in determining the Company’s effective tax rate and in evaluating its tax positions. The Company’s determination of its taxliability is subject to review by applicable tax authorities. Any audits or challenges of such determinations may adversely affect the Company’s effective taxrate, tax payments or financial condition. Recently enacted U.S. tax legislation made significant changes to federal tax law, including the taxation ofcorporations, by, among other things, reducing the corporate income tax rate, disallowing certain deductions that had previously been allowed, and alteringthe expensing of capital expenditures. The implementation and evaluation of these changes may require significant judgment and substantial planning onbehalf of the Company. These judgments and plans may require the Company to take new and different tax positions that if challenged could adversely affectthe Company’s effective tax rate, tax payments or financial condition. In addition, the new tax legislation remains subject to potential amendments, technicalcorrections, and further regulatory guidance and interpretation, any of which could lessen or increase certain adverse impacts on the Company. Furthermore,as the new tax legislation goes into effect, future changes may occur at the federal or state level that could result in unfavorable adjustments to theCompany’s tax liability.Our ability to attract and retain clients and key employees could be adversely affected if our reputation is harmed.Our ability (and 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 or perceived failure to address various issues could cause reputational harm, including a failure to address any of the following types ofissues: legal and regulatory requirements; cybersecurity and the proper maintenance or protection of the privacy of client and employee financial or otherpersonal information; record keeping deficiencies or errors; money-laundering; potential conflicts of interest and ethical issues. Moreover, any failure toappropriately address any issues of this nature could give rise to additional regulatory restrictions, and legal risks, which could lead to costly litigation orsubject us to enforcement actions, fines, or penalties and cause us to incur related costs and expenses. In addition, our banking, investment advisory andwealth 22Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.management businesses are dependent on the integrity of our banking personnel and our investment advisory and wealth managers. Lapses in integritycould cause reputational harm to our businesses that could lead to the loss of existing clients and make it more difficult for us to attract new clients and,therefore, could have a material adverse effect on our business, financial condition, results of operations and prospects.We may incur significant losses due to ineffective risk management processes and strategies.We seek to monitor and control our risk exposures through a risk and control framework encompassing a variety of separate but complementaryfinancial, credit, operational and compliance systems, and internal control and management review processes. However, those systems and review processesand the 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 experienced inrecent years, which highlight the limitations inherent in using historical data to manage risk. If those systems and review processes prove to be ineffective inidentifying and managing risks, we could be subjected to increased regulatory scrutiny and regulatory restrictions could be imposed on our business,including on our potential future business lines, as a result of which our business and operating results could be adversely affected.A natural disaster could harm our business.Historically, California, in which a substantial portion of our business is located, has been susceptible to natural disasters, such as earthquakes,drought, floods and wild fires. The nature and level of natural disasters cannot be predicted. These natural disasters could harm our operations throughinterference with communications, including the interruption or loss of our computer systems, which could prevent or impede us from gathering deposits,originating loans and processing and controlling our flow of business, as well as through the destruction of facilities and our operational, financial andmanagement information systems. Additionally, natural disasters could negatively impact the values of collateral securing our borrowers’ loans and interruptour borrowers’ abilities to conduct their business in a manner to support their debt obligations, either of which could result in losses and increased provisionsfor loan losses for us.We 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 collateralize nonperformingloans. As an owner of such properties, we could become subject to environmental liabilities and incur substantial costs for any property damage, personalinjury, investigation and clean-up that may be required due to any environmental contamination that may be found to exist at any of those properties, even ifwe did not engage in the activities that led to such contamination and those activities took place prior to our ownership of the properties. In addition, if weare the owner or former owner of a contaminated site, we may be subject to common law claims by third parties seeking damages for environmentalcontamination emanating from the site. If we were to become subject to significant environmental liabilities or costs, our business, financial condition, resultsof operations and prospects could be materially and 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 business may be negatively impacted by changes in general economic and market conditionsbecause the performance of that business is directly affected by conditions in the financial and securities markets. The performance of the financial marketsand the businesses operating in the securities industry can be highly volatile within relatively short periods of time and is directly affected by, among otherfactors, domestic and foreign economic conditions and general trends in business and finance, and by the threat, as well as the occurrence, of global conflicts,all of which are beyond our ability to control. We cannot assure you that broad market performance will be favorable in the future. Declines or a lack ofsustained growth in the financial markets may adversely affect the market value and performance of the investment securities that we manage, which couldlead to reductions in our investment management and advisory fees and, therefore, may result in a decline in the performance of our investment advisory andwealth management business. Additionally, if FFA’s performance were to decline, that could lead some of our clients to reduce their assets undermanagement by us and make it more difficult for us to retain existing clients and attract new clients. If any of these events or circumstances were to occur, theoperating results of our investment advisory and wealth management business and, therefore, our earnings could be materially and adversely affected. 23Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.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 investment advisory and wealth management businesses, the investment advisory contracts we have with our clients are typicallyterminable by the client without cause upon less than 30 days’ notice. As a result, even short term declines in the performance of the securities we manage,which can result from factors outside our control, such as adverse changes in market or economic condition or the poor performance of some of theinvestments we have recommended to our clients, could lead some of our clients to move assets under our management to other asset classes such as broadindex 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 in ourinvestment advisory businesses and even short-term declines in the performance of the investment portfolios we manage for our clients, whatever the cause,could result in a decline in assets under management and a corresponding decline in investment management fees, which would adversely affect our results ofoperations.The 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 and, for thatreason, the success of FFA’s business is heavily dependent on the quality and experience of our investment managers and their track records in terms ofmaking investment decisions that result in attractive investment returns for our clients. However, the market for such investment managers is extremelycompetitive and is increasingly characterized by frequent movement of investment managers among different firms. In addition, our individual investmentmanagers often have direct contact with particular clients, which can lead to a strong client relationship based on the client’s trust in that individualmanager. As a result, the loss of a key investment manager to a competitor could jeopardize our relationships with some of our clients and lead to the loss ofclient accounts, which could have a material adverse effect on our business, financial condition, results of operations and prospects.We may be adversely affected by the soundness of certain securities brokerage firms.FFA does not provide custodial services for its clients. Instead, client investment accounts are maintained under custodial arrangements with large,well established securities brokerage firms, either directly or through arrangements made by FFA with those firms. As a result, the performance of, or evenrumors or questions about the integrity or performance of, any of those brokerage firms could adversely affect the confidence of FFA’s clients in the servicesprovided by those firms or otherwise adversely impact their custodial holdings. Such an occurrence could negatively impact the ability of FFA to retainexisting or attract new clients and, as a result, could have a material adverse effect on our business, financial condition, results of operations and prospects.Risks Related to Our Regulatory EnvironmentThe banking industry is highly regulated, and legislative or regulatory actions taken now or in the future may have a significant adverseeffect on our operations.The banking industry is extensively regulated and supervised under both federal and state laws and regulations that are intended primarily toprotect customers, depositors, the FDIC’s Deposit Insurance Fund, and the banking system as a whole, not our stockholders. We are subject to the regulationand supervision of the Federal Reserve Board, the FDIC and the DBO. The banking laws, regulations and policies applicable to us govern matters rangingfrom the maintenance of adequate capital, safety and soundness, mergers and changes in control to the general business operations conducted by us,including permissible types, amounts and terms of loans and investments, the amount of reserves held against deposits, restrictions on dividends, impositionof specific accounting requirements, establishment of new offices and the maximum interest rate that may be charged on loans.We are subject to changes in federal and state banking statutes, regulations and governmental policies, or the interpretation or implementation ofthem, including regulations to be implemented as a result of the enactment of the Dodd-Frank Act. Any changes in any federal or state banking statute,regulation or governmental policy, including changes which may occur in 2019 and beyond during the current administration, could affect us in substantialand unpredictable ways, including ways that may adversely affect our business, results of operations, financial condition or prospects. Compliance with lawsand regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs. In addition, federal and statebanking regulators have broad authority to supervise our banking business and that of our subsidiaries, including the authority to prohibit activities thatrepresent unsafe or unsound banking practices or constitute violations of statute, rule, regulation, or administrative order. Failure to comply with any suchlaws, regulations or regulatory policies could result in sanctions by regulatory agencies, restrictions on our business activities, civil money penalties ordamage to our reputation, all of which could adversely affect our business, results of operations, financial condition or prospects. 24Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Federal and state banking agencies periodically conduct examinations of our business, including compliance with laws and regulations, andour failure to comply with any supervisory actions which we are, or may become, subject to as a result of such examinations may adversely affect us.The Federal Reserve Board, the FDIC, and the DBO may conduct examinations of our business, including for compliance with applicable laws andregulations. As a result of an examination, regulatory agencies may determine that the financial condition, capital resources, asset quality, assetconcentrations, earnings prospects, management, liquidity, sensitivity to market risk, or other aspects of any of our operations are unsatisfactory, or that we orour management are in violation of any law, regulation or guideline in effect from time to time. Regulatory agencies may take a number of different remedialactions, including the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation orpractice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to change the compositionof our concentrations in portfolio or balance sheet assets, to assess civil monetary penalties against officers or directors, to remove officers and directors and,if such conditions cannot be corrected or there is an imminent risk of loss to depositors, the FDIC may terminate our deposit insurance. A regulatory actionagainst us could have a material adverse effect on our business, results of operations, financial condition and prospects.As a result of the Dodd-Frank Act and associated rulemaking, we have become subject to stringent capital requirements.The Dodd-Frank Act required, among other things, that the federal banking agencies establish minimum leverage and risk-based capitalrequirements for insured banks and their holding companies. In July 2013, the federal banking agencies adopted the New Capital Rules, implementing theBasel III capital standards and establishing the minimum capital levels required under the Dodd-Frank Act, which apply to all U.S. banks, subject to varioustransition periods. We were required to comply with the New Capital Rules by January 1, 2015 with capital conservation buffer and deductions from commonequity tier 1 capital phased in through 2019. The New Capital Rules establishes a common equity Tier 1 capital ratio of 6.5% of risk-weighted assets, tier 1capital ratio of 8.0%, and total capital ratio of 10.0%, and leverage ratio of 5.0% for a financial institution to be considered “well capitalized” for regulatorypurposes. Additionally, the New Capital Rules require an institution to maintain a common equity Tier 1 capital conservation buffer which, as of January 1,2019, is 2.5% over the minimum risk-based capital requirement to avoid restrictions on the ability to pay dividends, discretionary bonuses, and to engage inshare repurchases. The New Capital Rules increase the required capital for certain categories of assets, including high volatility construction real estate loansand certain exposures related to securitizations; however, the New Capital Rules retains the current capital treatment of residential mortgages. Under the NewCapital Rules, we made a one-time, permanent election to continue to exclude accumulated other comprehensive income from capital. Implementation ofthese capital requirements, or any other new regulations, may adversely affect our ability to pay dividends, or require us to reduce business levels or raisecapital, including in ways that may adversely affect our results of operations, financial condition or prospects.New and future rulemaking by the CFPB and other regulators, as well as enforcement of existing consumer protection laws, may have amaterial and adverse effect on our operations and operating costs.The CFPB has the authority to implement and enforce a variety of existing federal consumer protection statutes and to issue new regulations but,with respect to institutions of our size, does not have primary examination and enforcement authority with respect to such laws and regulations. The authorityto examine depository institutions with $10.0 billion or less in assets, like us, for compliance with federal consumer laws remains largely with our primaryfederal regulator, the FDIC. However, the CFPB may participate in examinations of smaller institutions on a “sampling basis” and may refer potentialenforcement actions against such institutions to their primary regulators. In some cases, regulators such as the Federal Trade Commission and the Departmentof Justice also retain certain rulemaking or enforcement authority, and we also remain subject to certain state consumer protection laws. As an independentbureau within the Federal Reserve Board, the CFPB may impose requirements more severe than the previous bank regulatory agencies. The CFPB has placedsignificant emphasis on consumer complaint management and has established a public consumer complaint database to encourage consumers to filecomplaints they may have against financial institutions. We are expected to monitor and respond to these complaints, including those that we deemfrivolous, and doing so may require management to reallocate resources away from more profitable endeavors.We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, andfailure to comply with these laws could lead to a wide variety of sanctions.The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations imposenondiscriminatory lending requirements on financial institutions. The Department of Justice, the CFPB and other federal agencies are responsible forenforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under the Community Reinvestment Act or fairlending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions onmergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Private parties may also have the ability tochallenge an institution’s 25Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.performance under fair lending laws in private class action litigation. Any such actions could have a material adverse effect on our business, financialcondition, results of operations and prospects.We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes andregulations.The federal Bank Secrecy Act, the USA PATRIOT Act of 2001 and other laws and regulations require financial institutions, among other duties, toinstitute and maintain effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate. The federalFinancial Crimes Enforcement Network, established by the Treasury to administer the Bank Secrecy Act, is authorized to impose significant civil moneypenalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, aswell as the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. There is also increased scrutiny of compliance withthe rules enforced by the Office of Foreign Assets Control. If our policies, procedures and systems are deemed deficient or the policies, procedures andsystems of any financial institutions that we may acquire in the future are deemed deficient, we would be subject to liability, including fines and regulatoryactions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our businessplan, which would negatively impact our business, financial condition and results of operations. Failure to maintain and implement adequate programs tocombat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could materially andadversely affect our business, financial condition, results of operations and prospects.Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and usepersonal information and adversely affect our business opportunities.We are subject to various privacy, information security and data protection laws, including requirements concerning security breach notification,and we could be negatively impacted by these laws. For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things:(i) imposes certain limitations on our ability to share non-public personal information about our customers with non-affiliated third parties; (ii) requires thatwe provide certain disclosures to customers about our information collection, sharing and security practices and afford customers the right to “opt out” of anyinformation sharing by us with non-affiliated third parties (with certain exceptions) and (iii) requires that we develop, implement and maintain a writtencomprehensive information security program containing safeguards appropriate based on our size and complexity, the nature and scope of our activities, andthe sensitivity of customer information we process, as well as plans for responding to data security breaches. Various state and federal banking regulators andstates and foreign countries have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or lawenforcement notification in certain circumstances in the event of a security breach. Moreover, legislators and regulators in the United States and othercountries are increasingly adopting or revising privacy, information security and data protection laws that potentially could have a significant impact on ourcurrent and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumeror employee information, and some of our current or planned business activities. This could also increase our costs of compliance and business operationsand could reduce income from certain business initiatives. This includes increased privacy-related enforcement activity at the federal level, by the FederalTrade Commission, as well as at the state level, such as with regard to mobile applications.Compliance with current or future privacy, data protection and information security laws (including those regarding security breach notification)affecting customer or employee data to which we are subject could result in higher compliance and technology costs and could restrict our ability to providecertain products and services, which could have a material adverse effect on our business, financial conditions or results of operations. Our failure to complywith privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions,litigation, fines, sanctions and damage to our reputation, which could have a material adverse effect on our business, financial condition or results ofoperations.FFA’s business is highly regulated, and the regulators have the ability to limit or restrict, and impose fines or other sanctions on, FFA’sbusiness. 26Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.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 disclosureobligations. Moreover, the Investment Advisers Act grants broad administrative powers to regulatory agencies such as the SEC to regulate investmentadvisory businesses. If the SEC or other government agencies believe that FFA has failed to comply with applicable laws or regulations, these agencies havethe power to impose fines, suspensions of individual employees or other sanctions, which could include revocation of FFA’s registration under theInvestment Advisers Act. We are also subject to the provisions and regulations of ERISA to the extent that we act as a “fiduciary” under ERISA with respectto certain of our clients. ERISA and the applicable provisions of the federal tax laws, impose a number of duties on persons who are fiduciaries under ERISAand prohibit certain transactions involving the assets of each ERISA plan which is a client, as well as certain transactions by the fiduciaries (and certain otherrelated parties) to such plans. Additionally, like other investment advisory and wealth management companies, FFA also faces the risks of lawsuits byclients. The outcome of regulatory proceedings and lawsuits is uncertain and difficult to predict. An adverse resolution of any regulatory proceeding orlawsuit against FFA could result in substantial costs or reputational harm to FFA and, therefore, could have an adverse effect on the ability of FFA to retainkey relationship and wealth managers, and to retain existing clients or attract new clients, any of which could have a material adverse effect on our business,financial condition, results of operations and prospects.Risks Related to Ownership of Our Common StockWe may reduce or discontinue the payment of dividends on common stock.Our stockholders are only entitled to receive such dividends as our board of directors may declare out of funds legally available for such payments.Although we declared an initial cash dividend on our common stock in the first quarter of 2019, we may reduce or eliminate our common stock dividend inthe future. Our ability to pay dividends to our stockholders is restricted by Delaware and federal law and the policies and regulations of the Federal ReserveBoard, which is our federal banking regulator. Our ability to pay dividends to stockholders is also dependent on the payment to us of cash dividends by oursubsidiaries, FFA and FFB, which are the primary sources of cash for our payment of dividends. FFA and FFB are corporations that are separate and distinctfrom us and, as a result, they are subject to separate statutory or regulatory dividend restrictions that can affect their ability to pay cash dividends to us. FFA’sability to pay cash dividends to us is restricted under California corporate law. FFB’s ability to pay dividends to us is limited by various banking statutes andregulations and California law. Moreover, based on their assessment of the financial condition of FFB or other factors, the FDIC or the DBO could find thatpayment of cash dividends by FFB to us would constitute an unsafe or unsound banking practice, in which event they could restrict FFB from paying cashdividends, even if FFB meets the statutory requirements to do so. See the section entitled “Dividend Policy and Restrictions on the Payment of Dividends” inItem 5 of this report below for additional information about our dividend policy and the dividend restrictions that apply to us and to FFB and FFA. Areduction or discontinuance of dividends on our common stock could have a material adverse effect on our business, including the market price of ourcommon stock.The market prices and trading volume of our common stock may be volatile.We cannot assure you that the market prices and trading volumes of our common stock will not fluctuate or decline significantly in thefuture. Some of the factors that could negatively affect the prices of our shares or result in fluctuations in those prices or in trading volume of our commonstock could include the following, many of which are outside of our control: •quarterly variations in our operating results or in the quality of our earnings or assets; •operating results that differ 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; •the implementation of our growth strategy and performance of acquired businesses that vary from the expectations of securities analysts andinvestors; •the actual or anticipated enactment of new more costly government regulations that are applicable to our businesses or the imposition ofregulatory restrictions on us; •our dividend policy and any changes that might occur to that policy in the future; •future sales by us of our common stock or any other of our equity securities; •changes in global financial markets and global economies and general market conditions, such as changes in interest rates or fluctuations instock, commodity or real estate valuations; and •announcements of strategic developments, material acquisitions and other material events in our business or in the businesses of ourcompetitors. 27Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.These broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. Thestock market in general has from time to time experienced extreme price and volume fluctuations, including in recent months. In addition, in the past,following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been institutedagainst these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.Share ownership by our officers and directors and certain agreements may make it more difficult for third parties to acquire us or effectuatea change of control that might be viewed favorably by other stockholders.As of February 26, 2019 our executive officers and directors owned, in the aggregate, approximately 13% of our outstanding shares. As a result, ifour executive officers and directors were to oppose a third party’s acquisition proposal for, or a change in control of, the Company, our executive officers anddirectors may have sufficient voting power to be able to block or at least delay such an acquisition or change in control from taking place, even if otherstockholders would support such a sale or change of control. In addition, a number of our executive officers have change of control agreements which couldincrease the costs and, therefore, lessen the attractiveness of an acquisition of the Company to a potential acquiring party. Our corporate governance documents, and certain corporate and banking laws applicable to us, could make a takeover attempt, which maybe beneficial to our stockholders, more difficult.Our Board of Directors has the power under our certificate of incorporation to issue additional shares of common stock and create and authorize thesale of one or more series of preferred stock without having to obtain stockholder approval for such action. As a result, our Board could authorize theissuance of shares of a series of preferred stock to implement a stockholders rights plan (often referred to as a “poison pill”) or could sell and issue preferredshares with special voting rights or conversion rights, which could deter or delay attempts by our stockholders to remove or replace management, andattempts of third parties either to engage in proxy contests or to acquire control of the Company. In addition, our charter documents: •enable our Board to fill any vacancy on the Board; •enable our Board to amend our bylaws without stockholder approval, subject to certain exceptions; and •require compliance with an advance notice procedure with regard to any business that is to be brought by a stockholder before an annual orspecial meeting of stockholders and with regard to the nomination by stockholders of candidates for election as directors.These provisions could delay or prevent an acquisition of the Company or other transaction that some of our stockholders may believe isbeneficial to them. Furthermore, federal and state banking laws and regulations applicable to us require anyone seeking to acquire more than 10% of ouroutstanding shares or otherwise effectuate a change of control of the Company or of FFB, to file an application with, and to receive approval from, the FederalReserve Board, the DBO, and the FDIC to do so. These laws and regulations may discourage potential acquisition proposals and could delay or prevent achange of control of the Company, including by means of a transaction in which our stockholders might receive a premium over the market price of ourcommon stock.We may issue additional equity securities, or engage in other transactions which could dilute our book value or affect the priority of ourcommon stock, which may adversely affect the market price of our common stock.Our Board of Directors may determine from time to time to raise additional capital by issuing additional shares of our common stock or othersecurities. In addition, we may issue additional securities in connection with future acquisitions we may make. We are not restricted from issuing additionalshares of common stock, including securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. We cannotpredict or estimate the amount, timing, or nature of any future offerings or issuances of additional stock in connection with acquisitions, or the prices atwhich such offerings may be affected. Such offerings could be dilutive to common stockholders. New investors also may have rights, preferences andprivileges that are senior to, and that adversely affect, our then-current common stockholders. Additionally, if we raise additional capital by makingadditional offerings of debt or preferred equity securities, upon liquidation, holders of our debt securities and shares of preferred stock, and lenders withrespect to other borrowings, will receive distributions of our available assets prior to the holders of our common stock. Additional equity offerings may dilutethe holdings of our existing stockholders or reduce the market price of our common stock, or both. Holders of our common stock are not entitled topreemptive rights or other protections against dilution.A failure to maintain effective internal control over financial reporting could have a material adverse effect on our business and stock prices.If we are unable to maintain the effectiveness of our internal control over financial reporting in the future, we may be unable to report our financialresults accurately and on a timely basis. In such an event, investors and clients may lose confidence in the 28Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.accuracy and completeness of our financial statements, as a result of which our liquidity, access to capital markets, and perceptions of our creditworthinesscould be adversely affected and the market prices of our common stock could decline. In addition, we could become subject to investigations by NASDAQ,the SEC, or the Federal Reserve Board, or other regulatory authorities, which could require us to expend additional financial and management resources. As aresult, an inability to maintain the effectiveness of our internal control over financial reporting in the future could have a material adverse effect on ourbusiness, financial condition, results of operations and prospects.If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock priceand trading volume could decline.The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or ourbusiness. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock pricewould likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock coulddecrease, which might cause our stock price and trading volume to decline.An investment in our common stock is not an insured deposit and is not guaranteed by the FDIC, so you could lose some or all of yourinvestment.An investment in our common stock is not a bank deposit and is not insured against loss or guaranteed by the FDIC, any other deposit insurancefund or by any other public or private entity. An investment in our common stock is inherently risky for the reasons described herein. As a result, if youacquire our common stock, you could lose some or all of your investment.Other Risks and Uncertainties.Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business, financialcondition, operating results and future prospects. Item 1B.Unresolved Staff Comments.Not applicable.Item 2.Properties.The corporate headquarters for FFI and each of its subsidiaries is located in Irvine, California. The Company has offices in California in Irvine,Indian Wells, Pasadena, El Centro, West Los Angeles, El Segundo, Laguna Hills, Seal Beach, Auburn, Oakland, Sacramento, Roseville, Burlingame, Big Bear,Running Springs, Palos Verdes, Rolling Hills, Lucerne and San Diego and in Las Vegas, Nevada, and in Honolulu, Hawaii. All of these offices, except for theoffice in Auburn, California and Big Bear, California, are leased pursuant to non-cancelable operating leases that will expire between 2019 and 2026. Thebuilding for the office in Auburn, California is owned by us and is on land that is leased under a non-cancellable lease that expires in 2028. The building andland for the office in Big Bear are owned by us.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. 29Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Market InformationOn November 3, 2014, our common stock became listed and commenced trading on the NASDAQ Global Stock Market under the trading symbol“FFWM”. As of February 25, 2019, a total of 44,501,613 shares of our common stock were issued and outstanding which were held of record byapproximately 3,500 shareholders.Dividend Policy and Restrictions on the Payment of DividendsIn the first quarter of 2019, we announced the declaration of a cash dividend and it is the current intention of the Company to continue to paydividends on an ongoing basis.Our ability to pay dividends to our stockholders is subject to the restrictions set forth in the Delaware General Corporation Law (the “DGCL”) andthe regulatory authority of the Federal Reserve. The DGCL provides that a corporation, unless otherwise restricted by its certificate of incorporation, maydeclare and pay dividends out of its surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for thepreceding fiscal year, as long as the amount of capital of the corporation is not less than the aggregate amount of the capital represented by the issued andoutstanding stock of all classes having a preference upon the distribution of assets. Surplus is defined as the excess of a corporation’s net assets (i.e., its totalassets minus its total liabilities) over the capital associated with issuances of its common stock. Moreover, the DGCL permits a board of directors to reduce itscapital and transfer such amount to its surplus. In determining the amount of surplus of a Delaware corporation, the assets of the corporation, including stockof subsidiaries owned by the corporation, must be valued at their fair market value as determined by the board of directors, regardless of their historical bookvalue. In addition, since we are a bank holding company subject to regulation by the FRB, it may become necessary for us to obtain the approval of the FRBbefore we can pay cash dividends to our stockholders.Cash dividends from our two wholly-owned subsidiaries, FFB and FFA, represent the principal source of funds available to us, which we might useto pay cash dividends to our shareholders or for other corporate purposes. Since FFA and FFB are California corporations, they are subject to dividendpayment restrictions under the California General Corporation Law (the “CGCL”). The laws of the State of California, as they pertain to the payment of cashdividends by California state chartered banks, limit the amount of funds that FFB would be permitted to dividend to us more strictly than does the CGCL. Inparticular, under California law, cash dividends by a California state chartered bank may not exceed, the lesser of (i) the sum of its net income for the lastthree fiscal years (after deducting all dividends paid during the period), or (ii) the amount of its retained earnings.Also, because the payment of cash dividends has the effect of reducing capital, capital requirements imposed on FFB by the DBO and the FDICmay operate, as a practical matter, to preclude the payment, or limit the amount of, cash dividends that might otherwise be permitted to be made underCalifornia law; and the DBO and the FDIC, as part of their supervisory powers, generally require insured banks to adopt dividend policies which limit thepayment of cash dividends much more strictly than do applicable state laws.Additionally, under the terms of the holding company line of credit agreement, FFI may only declare and pay a dividend if the total amount ofdividends and stock repurchases during the current twelve months does not exceed 50% of FFI’s net income for the same twelve month periodRestrictions on Intercompany TransactionsSections 23A and 23B of the Federal Reserve Act, and the implementing regulations thereunder, limit transactions between a bank and its affiliatesand 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 the discountwindow and other benefits of the Federal Reserve System. Those Sections of the Act and the implementing regulations impose quantitative and qualitativelimits 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 affiliate benefits from thetransaction).Recent Sales of Unregistered SecuritiesOn June 1, 2018, we completed the acquisition of PBB Bancorp and its wholly owned subsidiary Premier Business Bank (collectively“PBB”). Pursuant to the merger agreement, each outstanding share of PBB common stock was converted into the right to receive 1.05 shares of FFI commonstock. At the closing of this acquisition, we issued an aggregate of 5,234,593 shares of FFI common stock, which had a value of $19.39 per share based on theclosing price per share of FFI common stock on May 31, 2018. These shares were issued in reliance upon an exemption from the registration requirements ofthe Securities Act of 1933, as amended 30Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.(the “Securities Act”) provided in Section 3(a)(10) of the Securities Act.Repurchases of Common Stock The Company adopted a stock repurchase plan on October 30, 2018 for the repurchase of up to 2,200,000 shares of its common stock from time totime as market conditions allow. The 2,200,000 shares authorized for repurchase under this plan represented approximately 5% of our outstanding commonshares as of October 30, 2018. This plan has no stated expiration date for the repurchases. As of December 31, 2018, the Company had purchased 35,300shares under this plan. The following table presents stock repurchases we made during the fourth quarter of 2018: Purchase Dates Total Number ofShares Purchased AveragePrice Paid PerShare Total Number ofShares Purchasedas Part of PubliclyAnnounced Program Maximum Number ofShares That May YetBe PurchasedUnder the Program December 1 to December 31, 2018 35,300 $14.09 35,300 2,164,700 31Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Stock Performance GraphThe following graph shows a comparison from November 3, 2014 (the date our common stock commenced trading on the NASDAQ Global Market)through December 31, 2018 of the cumulative total return for our common stock, compared against (i) the Russell 2000 Index, which measures theperformance of the smallest 2,000 members, by market cap, of the Russell Index; (ii) the Russell 3000 Index, which measures the performance of the smallest3,000 members, by market cap, of the Russell Index; and (iii) an index published by SNL Securities and known as the SNL Western Bank Index, which iscomprised of 47 banks and bank holding companies (including the Company), the shares of which are listed on NASDAQ or the New York Stock Exchangeand most of which are based in California and the remainder of which are based in nine other western states.The stock performance graph assumes that $100 was invested in Company common stock at the close of market on November 3, 2014, and, at thatsame date, in the Russell 2000 Index, the Russell 3000 Index and the SNL Western Bank Index and that any dividends paid in the indicated periods werereinvested. Shareholder returns shown in the stock performance graph are not necessarily indicative of future stock price performance. Period Ending 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 First Foundation Inc. (FFWM)100.00 130.04 157.11 204.41 141.79 Russell 2000 Index100.00 94.29 112.65 127.46 111.94 Russell 3000 Index100.00 98.53 108.79 129.30 120.26 SNL Western Bank Index100.00 100.99 108.69 118.83 91.74 The above performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilitiesunder that section and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act. 32Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Item 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, 2018, 2017, and 2016 have been derived from our audited consolidated financial statementsappearing elsewhere in this Annual Report on Form 10-K, and the selected consolidated financial information as of and for the years ended December 31,2015 and 2014 have been derived from our audited consolidated financial statements not appearing in this Annual Report on Form 10-K. 33Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.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. As of and for the Year Ended December 31, (In thousands, except share and per share data) 2018 2017 2016 2015 2014 Selected Income Statement Data: Net interest income $155,610 $113,618 $89,449 $64,471 $42,814 Provision for loan losses 4,220 2,762 4,681 2,673 235 Noninterest Income: Asset management, consulting and other fees 28,748 26,710 24,384 23,486 21,798 Other(1) 7,023 12,009 10,176 5,287 2,951 Noninterest expense 127,075 98,976 80,994 61,458 52,507 Income before taxes 60,086 50,599 38,334 22,832 14,821 Net income 42,958 27,582 23,303 13,378 8,394 Share and Per Share Data: (2) Net income per share: Basic $1.02 $0.80 $0.72 $0.60 $0.54 Diluted 1.01 0.78 0.70 0.58 0.51 Shares used in computation: Basic 42,092,361 34,482,630 32,365,800 22,310,014 15,474,072 Diluted 42,567,108 35,331,059 33,471,816 23,151,710 16,332,686 Tangible book value per share(3) $10.33 $9.46 $8.62 $8.05 $6.33 Shares outstanding at end of period(4) 44,496,007 38,207,766 32,719,632 31,961,052 15,690,364 Selected Balance Sheet Data: Cash and cash equivalents $67,312 $120,394 $597,946 $215,748 $29,692 Loans, net of deferred fees(5) 4,782,312 3,799,707 2,791,251 1,754,883 1,166,392 Allowance for loan and lease losses (“ALLL”) 19,000 18,400 15,400 10,600 10,150 Total assets 5,840,412 4,541,185 3,975,403 2,592,579 1,355,424 Noninterest-bearing deposits 1,074,661 1,097,196 661,781 299,794 246,137 Interest-bearing deposits 3,458,307 2,346,331 1,765,014 1,222,382 716,817 Borrowings(6) 708,000 678,000 1,250,000 796,000 282,886 Shareholders’ equity(4) 559,184 394,951 284,264 259,736 99,496 Selected Performance and Capital Ratios: Return on average assets 0.81% 0.70% 0.80% 0.76% 0.71%Return on average equity 9.1% 8.5% 8.4% 8.1% 9.1%Return on average tangible equity(3) 10.6% 8.6% 8.5% 8.1% 9.1%Net yield on interest-earning assets 2.99% 2.93% 3.13% 3.39% 3.70%Efficiency ratio(7) 64.4% 63.3% 65.3% 70.7% 76.0%Noninterest income as a % of total revenues 18.7% 25.4% 27.9% 33.1% 36.6%Tangible common equity to tangible assets(3) 8.01% 8.02% 7.10% 9.93% 7.33%Tier 1 leverage ratio 8.39% 8.44% 8.76% 11.81% 7.32%Tier 1 risk-based capital ratio 10.67% 11.99% 12.80% 17.44% 11.02%Total risk-based capital ratio 11.16% 12.61% 13.52% 18.19% 12.23%Other Information: Assets under management (end of period) $3,934,700 $4,296,077 $3,586,672 $3,471,237 $3,221,674 NPAs to total assets 0.21% 0.31% 0.25% 0.32% 0.11%Charge-offs to average loans 0.08% 0.00% 0.00% 0.15% 0.00%Ratio of ALLL to loans(8) 0.51% 0.54% 0.60% 0.61% 0.87%Number of banking offices(9) 20 14 11 9 8 (1)The 2018, 2017, 2016 and 2015 amounts include $0.4 million, $7.0 million, $7.8 million and $2.9 million in gains on sales of loans, respectively.(2)Share and per share data has been adjusted to reflect the two-for-one stock split effective January 18, 2017. 34Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.(3)Tangible common equity, (also referred to as tangible book value) and tangible assets, are equal to common equity and assets, respectively, less $99.5 million of intangibleassets as of December 31, 2018, $33.6 million of intangible assets as of December 31, 2017, $2.2 million of intangible assets as of December 31, 2016, $2.4 million ofintangible assets as of December 31, 2015, and $0.2 million of intangible assets as of December 31, 2014. Average tangible equity is equal to average common equity less$69.2 million, $4.5 million, $2.3 million, $1.2 million and $0.2 million of average goodwill and intangible assets for the years ended December 31, 2018, 2017, 2016, 2015and 2014, respectively. We believe that this information is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation ofcapital ratios. Accordingly, we believe that tangible common equity to tangible assets, tangible book value per share and return on average tangible equity provide informationthat is important to investors and that is useful in understanding our capital position and ratios. However, these non-GAAP financial measures are supplemental and are not asubstitute for an analysis based on GAAP measures. As other companies may use different calculations for these measures, this presentation may not be comparable to othersimilarly titled measures reported by other companies. (4)As a result of our acquisition of Premier Business Bancorp in 2018, we issued 5,234,593 shares of our common stock valued at $19.39 per share. As a result of ouracquisition of Community 1st Bancorp in 2017, we issued 2,955,623 shares of our common stock valued at $17.55 per share. As a result of our acquisition of Pacific RimBank in 2015, we issued 1,242,690 shares of our common stock, valued at $9.50 per share. As a result of our acquisition of Desert Commercial Bank, in 2014, we issued47,160 shares of our common stock, valued at $7.50 per share, as part of a contingent payout. As a part of our at-the-market offering, in 2018 and 2017, we issued 625,730and 1,382,506 shares of our common stock, respectively, at weighted average prices of $18.46 and $16.83 per share, respectively. In 2015, we issued 14,337,662 shares ofour common stock at a price of $9.63 per share in a public offering and sold 544,070 shares of our common stock to the President of FFB at a price of $9.19 per share. As aresult of the exercise of stock options: in 2018, we issued 308,334 shares of our common stock at an average exercise price of $7.64 per share: in 2017, we issued 1,072,000shares of our common stock at an average exercise price of $5.18 per share; in 2016, we issued 690,592 shares of our common stock at an average exercise price of $6.17 pershare; in 2015, we issued 62,614 shares of our common stock at an average exercise price of $6.47 per share; and in 2014, we issued 169,732 shares of our common stock atan average exercise price of $5.60 per share. We issued 154,884, 78,005, 67,988, 21,524, and 6,444 shares of common stock upon the vesting of restricted stock units in2018, 2017, 2016, 2015, and 2014, respectively.(5)Includes loans classified as loans held for sale.(6)Borrowings consist primarily of overnight and short-term advances obtained by FFB from the Federal Home Loan Bank. This line also includes outstanding debt of FFI.(7)The efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income. The efficiency ratio excludes (i) $3.8 million of costs related toan acquisition in 2018; (ii) $2.6 million of costs related to an acquisition in 2017; and (iii) in 2014, $1.0 million in gains on sale of REO; $1.0 million of costs related to acancelled initial public offering and $1.0 million of contingent payout expense related to the acquisition of DCB.(8)This ratio excludes loans acquired in our acquisitions as generally accepted accounting principles in the United States, or GAAP, requires estimated credit losses for acquiredloans to be recorded as discounts to those loans.(9)Does not include our corporate and administrative office or loan production offices, At December 31, 2018, we had two loan production offices. 35Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Item 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 ourbusinesses that accounted for the changes in our results of operations in the year ended December 31, 2018, as compared to our results of operation in theyear ended December 31, 2017; in our results of operations in the year ended December 31, 2017, as compared to our results of operations in the year endedDecember 31, 2016, and our financial condition at December 31, 2018 as compared to our financial condition at December 31, 2017. This discussion andanalysis is based on and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto contained elsewherein 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 of the factors that could cause results todiffer materially from expectations are discussed in the sections entitled “Risk Factors” and “Forward-Looking Statements” contained elsewhere in thisAnnual 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”) andaccounting 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.We have two business segments, “Banking” and “Investment Management and Wealth Planning” (“Wealth Management”). Banking includes theoperations of FFB and FFIS and Wealth Management includes the operations of FFA. The financial position and operating results of the stand-alone holdingcompany, FFI, are included under the caption “Other” in certain of the tables that follow, along with any consolidation elimination entries. 36Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Overview and Recent DevelopmentsWe continued strong growth during 2018 with loan originations of $1.8 billion, and deposit growth, including the deposits acquired from PBB, of$1.1 billion. Total revenues (net interest income and noninterest income) increased by 26%.The results of operations for Banking and Wealth Management reflect the benefits of this growth. Income before taxes for Banking increased $10.2million from $53.5 million in 2017 to $63.7 million in 2018. Income before taxes for Wealth Management increased from $3.1 million in 2017 to $3.6million in 2018. On a consolidated basis, income before taxes increased $9.5 million from $50.6 million in 2017 to $60.1 million in 2018.On June 1, 2018 we completed the acquisition of PBB. In connection with this acquisition, we issued an aggregate of 5,234,593 shares of FFIcommon stock, and acquired $523 million in loans, $478 million in deposits, and recorded a core deposit intangible of $6.7 million and goodwill of $60.9million. The Bank entered into two swap agreements in the fourth quarter of 2018 to reduce the interest rate risk of its portfolio of loans held for sale, whichit expects to sell in the third quarter of 2019. FFB elected to utilize hedge accounting for these swaps, and as a result, recorded a liability related to the swapsof $5.2 million and an offsetting mark to market increase of $4.8 million in its loans held for sale as of December 31, 2018. As required under hedgeaccounting guidelines, the difference of $0.4 million was recorded as a reduction of loan interest income. In the third quarter of 2018 we completed a remix ofour balance sheet whereby we sold $622 million of multifamily loans through a securitization and separately purchased $331 million of securities issued inthe securitization. As part of this process, to mitigate against increases in interest rates on these loans, we entered into a swap agreement, which was closed outupon completion of the sale of loans. As a result of the swap, our interest income on loans was reduced by $0.8 million for the period in which the swap wasin place, while the value of the swap at close-out was $5.9 million, which offset decreases in the value of the loans sold during the period in which the swapwas in place.On October 30, 2018, we announced the initiation of a stock repurchase program under which we can repurchase up to 2.2 million shares of ourcommon stock, subject to certain regulatory restrictions. As a result, we will not be selling stock under the “at-the-market” equity offering while we arepurchasing shares of our common stock under the stock repurchase program. During the first quarter of 2018, the Company sold 625,730 million shares of itscommon stock through the at-the-market offering at an average price of $18.46 per share, generating net proceeds of $11.3 million. During the fourth quarterof 2018, the Company purchased 35,300 shares at a cost of $0.5 million under the stock repurchase program.On January 29, 2019, the Board of Directors declared an initial quarterly cash dividend of $0.05 per common share to be paid on March 15, 2019to stockholders of record as of the close of business on March 1, 2019.Results of OperationsYears Ended December 31, 2018 and 2017.Our net income for 2018 was $43 million, as compared to $27.6 million for 2017. The primary sources of revenue for Banking are net interestincome, fees from its deposits, trust and insurance services, gains on sales of loans, certain loan fees, and consulting fees. The primary sources of revenue forWealth Management are asset management fees assessed on the balance of AUM. Compensation and benefit costs, which represent the largest component ofnoninterest expense, accounted for 49% and 76%, respectively, of the total noninterest expense for Banking and Wealth Management in 2018. 37Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.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 2018: Interest income $207,306 $— $— $207,306 Interest expense 49,935 — 1,761 51,696 Net interest income 157,371 — (1,761) 155,610 Provision for loan losses 4,220 — — 4,220 Noninterest income 11,322 25,247 (798) 35,771 Noninterest expense 100,778 21,670 4,627 127,075 Income (loss) before taxes on income $63,695 $3,577 $(7,186) $60,086 2017: Interest income $136,801 $— $— $136,801 Interest expense 22,530 — 653 23,183 Net interest income 114,271 — (653) 113,618 Provision for loan losses 2,762 — — 2,762 Noninterest income 16,016 23,556 (853) 38,719 Noninterest expense 73,990 20,469 4,517 98,976 Income (loss) before taxes on income $53,535 $3,087 $(6,023) $50,599 General. Our net income and income before taxes in 2018 were $43.0 million and $60.1 million, respectively, as compared to $27.6 million and$50.6 million, respectively, in 2017. The $9.5 million increase in income before taxes was due to a $10.2 million increase in income before taxes for Bankingand a $0.5 million increase in income before taxes for Wealth Management which was partially offset by a $1.1 million increase in corporate interestexpenses. The increase in Banking was due to higher net interest income, which was partially offset by a higher provision for loan losses, lower noninterestincome and higher noninterest expenses. The increase in Wealth Management was due to higher noninterest income, which was partially offset by highernoninterest expenses. Corporate interest expenses increased $1.1 million due to increases in balances outstanding and increased rates on our holdingcompany line of credit.Our effective tax rate for 2018 was 28.5% as compared to 45.5% for 2017, and as a result of reduced federal tax rates under the Tax Act, ourstatutory tax rate decreased from 41.5% in 2017 to 29.0% in 2018. In the fourth quarter of 2017, we recorded a $5.4 million tax charge, attributable to theremeasurement of the net deferred tax asset as a result of the reduced corporate tax rate under the Tax Cuts and Jobs Act enacted in the fourth quarter of 2017,that was partially offset by a 743 basis point reduction in our effective tax rate related to excess tax benefits resulting from the exercise of stock awards. 38Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Net Interest Income. The following tables set forth information regarding (i) the total dollar amount of interest income from interest-earning assetsand 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: 2018 2017 (dollars in thousands) AverageBalances Interest AverageYield /Rate AverageBalances Interest AverageYield /Rate Interest-earning assets: Loans $4,453,822 $186,211 4.18% $3,277,530 $121,707 3.71%Securities 594,514 16,855 2.84% 498,198 12,407 2.49%FHLB stock, fed fundsand deposits 151,884 4,240 2.79% 95,941 2,687 2.80%Total interest-earning assets 5,200,220 207,306 3.99% 3,871,669 136,801 3.53%Noninterest-earning assets: Nonperforming assets 11,187 7,346 Other 110,958 32,227 Total assets $5,322,365 $3,911,242 Interest-bearing liabilities: Demand deposits $333,483 2,779 0.83% $265,378 1,503 0.57%Money market and savings 1,139,569 10,491 0.92% 1,033,174 8,256 0.80%Certificates of deposit 1,410,109 25,506 1.81% 803,150 7,684 0.96%Total interest-bearing deposits 2,883,161 38,776 1.34% 2,101,702 17,443 0.83%Borrowings 612,817 12,920 2.11% 532,914 5,740 1.08%Total interest-bearing liabilities 3,495,978 51,696 1.48% 2,634,616 23,183 0.88%Noninterest-bearing liabilities: Demand deposits 1,329,873 943,749 Other liabilities 23,700 13,701 Total liabilities 4,849,551 3,592,066 Stockholders’ equity 472,814 319,176 Total liabilities and equity $5,322,365 $3,911,242 Net Interest Income $155,610 $113,618 Net Interest Rate Spread 2.51% 2.65%Net Yield on Interest-earning Assets 2.99% 2.93%Net 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 2018 as compared to 2017. Increase (Decrease) due to Net Increase(Decrease) (dollars in thousands) Volume Rate Interest earned on: Loans $47,752 $16,752 $64,504 Securities 2,591 1,857 4,448 FHLB stock, fed funds and deposits 1,562 (9) 1,553 Total interest-earning assets 51,905 18,600 70,505 Interest paid on: Demand deposits 449 827 1,276 Money market and savings 903 1,332 2,235 Certificates of deposit 8,182 9,640 17,822 Borrowings 972 6,208 7,180 Total interest-bearing liabilities 10,506 18,007 28,513 Net interest income $41,399 $593 $41,992 Net interest income for Banking increased 38% from $114.3 million in 2017, to $157.4 million in 2018 due to a 34% increase in interest-earningassets and an increase in the net yield on interest earning assets. On a consolidated basis our net yield on interest earning assets was 2.99% for 2018 ascompared to 2.93% during 2017. This increase was due to a 41% increase in noninterest bearing deposits and a 48% increase in our average equity balancewhich were partially offset by a decrease in the net interest rate spread from 39Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.2.65% in 2017 to 2.51% in 2018. The decrease in the net interest rate spread was due to an increase in the cost of interest-bearing liabilities, which waspartially offset by an increase in the yield on interest-earnings assets. The yield on interest-earning assets increased to 3.99% in 2018 from 3.53% in 2017 as(i) new originations and acquired loans added to the portfolio bear interest rates higher than the current portfolio rates as a result of increases in market rates,(ii) the realization of $3.7 million of credit and yield discounts on the payoff of acquired loans and (iii) higher yields on securities due to purchases ofsecurities in 2018 with yields higher than those in our existing securities portfolio, which were partially offset by a net $1.2 million decrease in interestincome due to accounting for swaps in place during 2018. The increase in the cost of interest-bearing liabilities was due to increased costs of interest-bearingdeposits, resulting from increases in deposit market rates, and increased costs of borrowings as the average rate on FHLB advances increased from 0.98% in2017 to 1.92% in 2018. The average balance outstanding under the holding company line of credit increased from $13.7 million in 2017 to $31.5 million in2018, and the average rate increased by 82 basis points, resulting in a $1.1 million increase in corporate interest expense.Provision for loan losses. The provision for loan losses represents our estimate of the amount necessary to be charged against the current period’searnings to maintain the ALLL at a level that we consider adequate in relation to the estimated losses inherent in the loan portfolio. The provision for loanlosses is impacted by changes in loan balances as well as changes in estimated loss assumptions and charge-offs and recoveries. The amount of the provisionalso takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problemloans, current economic conditions and certain other subjective factors that may affect the ability of borrowers to meet their repayment obligations to us. For2018 and 2017, we recorded provisions for loan losses of $4.2 million and $2.8 million, respectively. The increase in the provision for loan losses for 2018 ascompared to 2017 reflects the increase in loan balances during 2018 when compared to the increase in loan balances during 2017. We recognized $3.6million in loan chargeoffs, net of recoveries, in 2018, as compared to $0.2 million in recoveries in 2017.Noninterest income. Noninterest income for Banking includes fees charged to clients for trust services and deposit services, consulting fees,prepayment and late fees charged on loans, gain on sale of loans, gains and losses from capital market activities and insurance commissions. The followingtable provides a breakdown of noninterest income for Banking for the years ended December 31: (dollars in thousands) 2018 2017 Trust fees $3,833 $3,360 Consulting fees 407 416 Deposit charges 838 442 Gain on sale of loans 419 7,029 Loan related fees 4,421 3,418 Other 1,404 1,351 Total noninterest income $11,322 $16,016 Noninterest income in Banking in 2018 was $11.3 million as compared to $16.0 million in 2017, as decreases in the gain on sale of loans wasoffset by higher loan, deposit and trust fees. In 2017 we realized a $7.0 million gain on sale of loans as compared to $0.4 million in 2018 as rising marketinterest rates resulted in lower gains on sale. As a result of increases related to the acquisitions of C1B and PBB, loan fees and deposit fees increased from$3.9 million in 2017 to $5.3 million in 2018. Due to increased levels of AUM, trust fees increased by $0.5 million in 2018 as compared to 2017.Noninterest income for Wealth Management includes fees charged to high net-worth clients for managing their assets and for providing financialplanning consulting services. The following table provides the amounts of noninterest income for Wealth Management for the years ended December 31: (dollars in thousands) 2018 2017 Noninterest income $25,247 $23,556 Noninterest income for Wealth Management increased by $1.7 million in 2018 when compared to 2017 due to higher levels of AUM. 40Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Noninterest Expense. The following table provides a breakdown of noninterest expense for Banking and Wealth Management for the years endedDecember 31: Banking Wealth Management (dollars in thousands) 2018 2017 2018 2017 Compensation and benefits $49,709 $39,357 $16,404 $15,899 Occupancy and depreciation 17,362 13,070 2,220 2,129 Professional services and marketing 4,468 3,961 2,317 1,838 Customer Service Costs 15,077 7,041 — — Other expenses 14,162 10,561 729 603 Total noninterest expense $100,778 $73,990 $21,670 $20,469 Noninterest expense in Banking increased from $74.0 million in 2017 to $100.8 million in 2018, due to increases in staffing and costs associatedwith the Bank’s expansion, including the acquisition of C1B in November of 2017 and PBB in June of 2018, and the growth of its balances of loans anddeposits. Compensation and benefits for Banking increased $10.4 million or 26% during 2018 as compared to 2017 due to salary increases and an increase inthe number of FTE in Banking, which increased to 385.8 in 2018 from 310.9 in 2017 as a result of the increased staffing related to the acquisitions of C1Band PBB and additional personnel added to support the growth in loans and deposits. A $4.3 million increase in occupancy and depreciation for Banking in2018 as compared to 2017 was due to costs related to the acquisitions of C1B and PBB and increases in our data processing costs due to increased volumesand the implementation of enhancements. The $0.5 million increase in professional services and marketing in Banking in 2018 as compared to 2017 was dueto higher costs incurred in 2018 related to the integration of the operations of C1B and PBB which were partially offset by lower legal costs. Customerservice costs for Banking increased $8.0 million in 2018 as compared to 2017 due primarily to increases in the earnings credit rates paid on the depositbalances, which reflect the increases in short term market rates during 2018 when compared to 2017. The $3.6 million increase in other expenses for Bankingin 2018 when compared to 2017 were due to the higher acquisition costs, as the $3.8 million of acquisition costs related to the PBB acquisition in 2018 werehigher than the $2.6 million of acquisition costs related to the C1B acquisition in 2017, and to additional activities related to the acquisitions, primarilyamortization of core deposit intangibles and FDIC insurance.The $1.2 million increase in noninterest expense for Wealth Management was due to salary increases, legal costs and increases in referral fees dueto higher levels of AUM.Years Ended December 31, 2017 and 2016.Our net income for 2017 was $27.6 million, as compared to $23.3 million for 2016. The primary sources of revenue for Banking are net interestincome, fees from its deposits, trust and insurance services, gains on sales of loans, certain loan fees, and consulting fees. The primary sources of revenue forWealth Management are asset management fees assessed on the balance of AUM. Compensation and benefit costs, which represent the largest component ofnoninterest expense, accounted for 53% and 78%, respectively, of the total noninterest expense for Banking and Wealth Management in 2017.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 2017: Interest income $136,801 $— $— $136,801 Interest expense 22,530 — 653 23,183 Net interest income 114,271 — (653) 113,618 Provision for loan losses 2,762 — — 2,762 Noninterest income 16,016 23,556 (853) 38,719 Noninterest expense 73,990 20,469 4,517 98,976 Income (loss) before taxes on income $53,535 $3,087 $(6,023) $50,599 2016: Interest income $100,642 $— $— $100,642 Interest expense 11,193 — — 11,193 Net interest income 89,449 — — 89,449 Provision for loan losses 4,681 — — 4,681 Noninterest income 13,832 21,348 (620) 34,560 Noninterest expense 58,422 19,232 3,340 80,994 Income (loss) before taxes on income $40,178 $2,116 $(3,960) $38,334 41Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.General. Our net income and income before taxes in 2017 were $27.6 million and $50.6 million, respectively, as compared to $23.3 million and$38.3 million, respectively, in 2016. The increase in income before taxes was the result of a $13.4 million increase in income before taxes for Banking and a$1.0 million increase in income before taxes for Wealth Management, which were partially offset by a $2.1 million increase in corporate expenses. Theincrease in Banking was due to higher net interest income, a lower provision for loan losses and higher noninterest income which were partially offset byhigher noninterest expenses. The increase in Wealth Management was due to higher noninterest income which was partially offset by higher noninterestexpense. Corporate interest expenses are related to the holding company line of credit which did not exist in 2016. Corporate noninterest expenses increasedin 2017 by $1.2 million when compared to 2016 due to costs related to strategic activities, including the Company’s at the market stock offering andacquisition related activities, higher charitable contributions and other increases in costs, including legal and marketing.Our effective tax rate for 2017 was 45.5% as compared to 39.2% for 2016, and as compared to a statutory rate of approximately 41.5%. In the fourthquarter of 2017, we recorded a $5.4 million tax charge, attributable to the remeasurement of the net deferred tax asset as a result of the reduced corporate taxrate under the Tax Cuts and Jobs Act enacted in the fourth quarter of 2017. During 2017 and 2016, we realized 743 and 267 basis point reductions in oureffective tax rate, respectively, related to excess tax benefits resulting from the exercise of stock awards.Net Interest Income: The following tables set forth information regarding (i) the total dollar amount of interest income from interest-earning assetsand 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: 2017 2016 (dollars in thousands) AverageBalances Interest AverageYield /Rate AverageBalances Interest AverageYield /Rate Interest-earning assets: Loans $3,277,530 $121,707 3.71% $2,263,292 $85,080 3.76%Securities 498,198 12,407 2.49% 525,480 12,781 2.43%FHLB stock, fed funds and deposits 95,941 2,687 2.80% 64,626 2,781 4.30%Total interest-earning assets 3,871,669 136,801 3.53% 2,853,398 100,642 3.53%Noninterest-earning assets: Nonperforming assets 7,346 7,261 Other 32,227 33,696 Total assets $3,911,242 $2,894,355 Interest-bearing liabilities: Demand deposits $265,378 1,503 0.57% $214,120 978 0.46%Money market and savings 1,033,174 8,256 0.80% 704,644 4,663 0.66%Certificates of deposit 803,150 7,684 0.96% 525,685 3,275 0.62%Total interest-bearingdeposits 2,101,702 17,443 0.83% 1,444,449 8,916 0.62%Borrowings 532,914 5,740 1.08% 507,025 2,277 0.45%Total interest-bearingliabilities 2,634,616 23,183 0.88% 1,951,474 11,193 0.57%Noninterest-bearing liabilities: Demand deposits 943,749 650,956 Other liabilities 13,701 15,809 Total liabilities 3,592,066 2,618,239 Stockholders’ equity 319,176 276,116 Total liabilities and equity $3,911,242 $2,894,355 Net Interest Income $113,618 $89,449 Net Interest Rate Spread 2.65% 2.96%Net Yield on Interest-earning Assets 2.93% 3.13% 42Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Net 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 2017 as compared to 2016. Increase (Decrease) due to Net Increase(Decrease) (dollars in thousands) Volume Rate Interest earned on: Loans $37,773 $(1,146) $36,627 Securities (684) 310 (374) FHLB stock, fed funds and deposits 1,072 (1,166) (94) Total interest-earning assets 38,161 (2,002) 36,159 Interest paid on: Demand deposits 261 264 525 Money market and savings 2,462 1,131 3,593 Certificates of deposit 2,141 2,268 4,409 Borrowings 112 3,351 3,463 Total interest-bearing liabilities 4,976 7,014 11,990 Net interest income $33,185 $(9,016) $24,169 Net interest income increased 27% from $89.4 million in 2016, to $113.6 million in 2017 because of a 36% increase in interest-earning assets,which was partially offset by a decrease in our net interest rate spread. The decrease in the net interest rate spread from 2.96% in 2016 to 2.65% in 2017 wasdue to an increase in the cost of interest-bearing liabilities. The yield on interest-earning assets was 3.53% for both 2017 and 2016 as a decrease in the yieldon loans due to prepayments of higher yielding loans and the addition of loans at market rates in the latter half of 2016 which were lower than the then-current yield on our loan portfolio, were offset by an increase in the proportion of higher yielding loans to total assets in 2017. The cost of interest-bearingliabilities increased from 0.57% to 0.88% due to increased costs of interest-bearing deposits, resulting from increases in deposit market rates and increasedcosts of borrowings as the average rate on FHLB advances increased from 0.45% in 2016 to 0.99% in 2017. In addition, the Company borrowed on itsholding company line of credit during 2017. 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 for loan losses also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, reviewof specific problem loans, current economic conditions and certain other subjective factors that may affect the ability of borrowers to meet their repaymentobligations to us. For 2017 and 2016, we recorded provisions for loan losses of $2.8 million and $4.7 million, respectively. The lower provision for loanlosses reflects improving credit trends in our loan portfolio. We realized $0.2 million and $0.1 million in recoveries in 2017 and 2016, respectively.Noninterest income: Noninterest income for Banking includes fees charged to clients for trust services and deposit services, consulting fees,prepayment and late fees charged on loans, gain on sale of loans and REO, gains and losses from capital market activities and insurance commissions. Thefollowing table provides a breakdown of noninterest income for Banking for the years ended December 31: (dollars in thousands) 2017 2016 Trust fees $3,360 $2,798 Consulting fees 416 680 Deposit charges 442 444 Loss on capital market activities — (1,043)Gain on sale of loans 7,029 7,812 Loan related fees 3,418 1,749 Other 1,351 1,392 Total noninterest income $16,016 13,832 Noninterest income in Banking increased $2.2 million from $13.8 million in 2016 to $16.0 million in 2017. Loan related fees, including loanservicing fees, were $1.7 million higher in 2017 as compared to 2016 due to increased balances of loans serviced for others and increased loan activity. Inaddition, trust fees increased $0.6 million due primarily to higher levels of AUM in the Bank’s trust operations. During 2017, we realized $7.0 million ingains on sales of loans as compared to $7.8 million in gains on the sale of multifamily loans and $1.0 million in losses from capital market activities during2016. 43Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Noninterest income for Wealth Management includes fees charged to high net-worth clients for managing their assets and for providing financialplanning consulting services. The following table provides the amounts of noninterest income for Wealth Management for the years ended December 31: (dollars in thousands) 2017 2016 Asset management fees $23,556 $21,348 The $2.2 million increase in noninterest income in Wealth Management in 2017 as compared to 2016 was primarily due to increases in assetmanagement fees of 11%. The increases in asset management fees were primarily due to an 11% increase in the AUM balances used for computing the assetmanagement fees in 2017, as compared to AUM balances used for computing the asset management fees in 2016. Noninterest Expense: The following table provides a breakdown of noninterest expense for Banking and Wealth Management for the years endedDecember 31: Banking Wealth Management (dollars in thousands) 2017 2016 2017 2016 Compensation and benefits $39,357 $33,024 $15,899 $14,579 Occupancy and depreciation 13,070 9,731 2,129 2,151 Professional services and marketing 3,961 6,664 1,838 1,852 Customer service costs 7,041 1,679 — — Other expenses 10,561 7,324 603 650 Total noninterest expense $73,990 $58,422 $20,469 $19,232 Noninterest expense in Banking increased from $58.4 million in 2016 to $74.0 million in 2017 due to $2.6 million of one-time costs related to theacquisition of C1B, increases in staffing and costs associated with the Bank’s expansion, including the acquisition of C1B and the growth of its balances ofloans and deposits, which was partially offset by lower legal costs. Compensation and benefits for Banking increased $6.3 million or 19%, during 2017 ascompared to 2016 as the number of FTE in Banking increased to 310.9 from 260.2 as a result of the increased staffing related to the C1B acquisition, theDecember 2016 acquisition of two banking offices and additional personnel added to support the growth in loans and deposits. The $3.3 million increase inoccupancy and depreciation for Banking in 2017 as compared to 2016 was due to costs associated with our expansion into additional corporate space, theC1B acquisition, the December 2016 acquisition of two banking offices, the opening of new offices during 2016 and increases in our data processing costsdue to increased volumes and the implementation of enhancements. Litigation related costs for Banking were $2.8 million lower in 2017 as compared to2016 due to the reimbursement in 2017 from our insurance providers of $1.8 million of previously incurred legal costs and costs incurred for a trial in 2016.The $5.4 million increase in customer service costs were primarily related to the increases in noninterest demand deposits of large fiduciaries who managecomplicated deposit relationships. The $3.2 million increase in other expenses in Banking in 2017 as compared to 2016 was due to $2.6 million of one-timecosts related to the acquisition of C1B and a $0.4 million increase in FDIC insurance fees.Noninterest expense in Wealth Management increased $1.2 million in 2017 as compared to 2016, primarily due to increases in compensation andbenefits related to a 6% increase in FTE and cost of living increases. 44Source: First Foundation Inc., 10-K, March 01, 2019Powered 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. 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 2018: Cash and cash equivalents $67,148 $4,636 $(4,472) $67,312 Securities AFS 809,569 — — 809,569 Loans Held For Sale 507,643 — — 507,643 Loans, net 4,274,669 — — 4,274,669 Premises and equipment 8,221 788 136 9,145 FHLB Stock 20,307 — — 20,307 Deferred taxes 12,905 103 243 13,251 REO 815 — — 815 Goodwill and Intangibles 99,482 — — 99,482 Other assets 35,906 605 1,708 38,219 Total assets $5,836,665 $6,132 $(2,385) $5,840,412 Deposits $4,544,168 $— $(11,200) $4,532,968 Borrowings 703,000 — 5,000 708,000 Intercompany balances 3,689 467 (4,156) — Other liabilities 34,886 2,830 2,544 40,260 Shareholders’ equity 550,922 2,835 5,427 559,184 Total liabilities and equity $5,836,665 $6,132 $(2,385) $5,840,412 2017: Cash and cash equivalents $120,261 $4,407 $(4,274) $120,394 Securities AFS 519,364 — — 519,364 Loans Held For Sale 154,380 — — 154,380 Loans, net 3,645,327 — — 3,645,327 Premises and equipment 5,519 926 136 6,581 FHLB Stock 19,060 — — 19,060 Deferred taxes 12,008 172 (37) 12,143 REO 2,920 — — 2,920 Goodwill and Intangibles 33,576 — — 33,576 Other assets 25,521 179 1,740 27,440 Total assets $4,537,936 $5,684 $(2,435) $4,541,185 Deposits $3,460,465 $— $(16,938) $3,443,527 Borrowings 628,000 — 50,000 678,000 Intercompany balances 3,301 643 (3,944) — Other liabilities 18,646 2,970 3,091 24,707 Shareholders’ equity 427,524 2,071 (34,644) 394,951 Total liabilities and equity $4,537,936 $5,684 $(2,435) $4,541,185 2016: Cash and cash equivalents $597,795 $2,576 $(2,425) $597,946 Securities AFS 509,578 — — 509,578 Loans Held For Sale 250,942 — — 250,942 Loans, net 2,540,309 — — 2,540,309 Premises and equipment 5,603 991 136 6,730 FHLB Stock 33,750 — — 33,750 Deferred taxes 16,602 283 (74) 16,811 REO 1,734 — — 1,734 Goodwill and Intangibles 2,177 — — 2,177 Other assets 13,270 445 1,711 15,426 Total assets $3,971,760 $4,295 $(652) $3,975,403 Deposits $2,435,538 $— $(8,743) $2,426,795 Borrowings 1,250,000 — — 1,250,000 Intercompany balances 3,019 539 (3,558) — Other liabilities 11,670 2,744 (70) 14,344 45Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.(dollars in thousands) Banking WealthManagement Other andEliminations Total Shareholders’ equity 271,533 1,012 11,719 284,264 Total liabilities and equity $3,971,760 $4,295 $(652) $3,975,403 Our consolidated balance sheet is primarily affected by changes occurring in our Banking operations as our Wealth Management operations do notmaintain significant levels of assets. Banking has experienced and is expected to continue to experience increases in its total assets as a result of our growthstrategy.During 2018, total assets increased by $1.3 billion primarily due to increases in loans, including the balances related to the PBB acquisition andsecurities. As a result of the PBB acquisition, we acquired $523 million in loans and $478 million in deposits. Loans and loans held for sale increased by$983 million as a result of the acquisition of PBB and $1.8 billion of originations which were partially offset by the sale of $676 million of multifamily loansand payoffs or scheduled payments of $712 million. Securities increased by $290 million as increases in market value and $366 million of purchases werepartially offset by principal paydowns and sales of $91 million. Deposits increased by $1.1 billion as a result of the acquisition of PBB and increases in ourbranch deposits and wholesale deposits of $91 million and $790 million, respectively, while our specialty deposits decreased by $268 million as the Bankreduces its reliance on higher costing institutional deposits. Bank borrowings increased to $703 million at December 31, 2018 from $628 million atDecember 31, 2017. During the first quarter of 2018, the Company sold 0.6 million shares of its common stock through its at-the-market offering at anaverage price of $18.46 per share, generating net proceeds of $11.3 million. During the fourth quarter of 2018, the Company purchased 35,300 shares at acost of $0.5 million under its stock repurchase program. At December 31, 2018, the outstanding balance on the holding company line of credit was $5million as compared to $50 million at December 31, 2017.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 by $53 million during 2018. Changes in cash and cash equivalents are primarilyaffected by the funding of loans, investments in securities, and changes in our sources of funding: deposits, FHLB advances and FFI borrowings.Securities available for sale: The following table provides a summary of the Company’s AFS securities portfolio at December 31: AmortizedCost Gross Unrealized EstimatedFair Value (dollars in thousands) Gains Losses 2018: Agency mortgage-backed securities $723,597 $11,883 $(13,811) $721,669 Corporate bonds 54,000 638 (294) 54,344 Beneficial interest – FHLMC securitization 32,143 1,736 (1,813) 32,086 Other 1,458 15 (3) 1,470 Total $811,198 $14,292 $(15,921) $809,569 2017: Agency mortgage-backed securities $471,131 $287 $(7,399) $464,019 Corporate bonds 19,000 — — 19,000 Beneficial interest – FHLMC securitization 35,930 1,811 (1,889) 35,852 Other 499 — (6) 493 Total $526,560 $2,098 $(9,294) $519,364 2016: Agency mortgage-backed securities $476,163 160 (7,414) 468,909 Beneficial interest – FHLMC securitization 42,028 711 (2,367) 40,372 Other 300 — (3) 297 Total $518,491 $871 $(9,784) $509,578 The US Treasury Securities are pledged as collateral to the State of California to meet regulatory requirements related to FFB’s trust operations.The $290 million increase in AFS securities was due to $10 million of AFS securities acquired from PBB and the purchase of $366 million of AFSsecurities, which were partially offset by $81 million in principal payments, $10 million of sales of AFS securities and decreases in the market value ofsecurities reflected in the mark to market of AFS securities. The $10 million increase in AFS securities in 2017 was due to $114 million of AFS securitiesacquired from C1B and the purchase of $29 million of AFS securities, which were partially offset by $74 million in principal payments, $62 million of salesof AFS securities and decreases in the market value of securities reflected in the mark to market of AFS securities. 46Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.The table below indicates, as of December 31, 2018, the gross unrealized losses and fair values of our investments, aggregated by investmentcategory and length of time that the individual securities have been in a continuous unrealized loss position. Securities with Unrealized Loss at December 31, 2018 (dollars in thousands) Less than 12 months 12 months or more Total FairValue UnrealizedLoss FairValue UnrealizedLoss FairValue UnrealizedLoss Agency mortgage-backed securities $— $— $387,151 $(13,811) $387,151 $(13,811)Corporate bonds 38,706 (294) — — 38,706 (294)Beneficial interests in FHLMC securitization 429 (11) 7,038 (1,802) 7,467 (1,813)Other — — 497 (3) 497 (3)Total temporarily impaired securities $39,135 $(305) $394,686 $(15,616) $433,821 $(15,921)Unrealized losses on agency notes and agency mortgage-backed securities have not been recognized into income because the issuer bonds are ofhigh 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 totheir anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the bonds approachmaturity.The scheduled maturities of securities AFS, other than agency mortgage backed securities, and the related weighted average yield is as follows asof December 31, 2018: (dollars in thousands) Less than 1 Year 1 Through 5 years 5 Through 10 Years After10 Years Total Amortized Cost: Corporate bonds $— $— $54,000 $— $54,000 Other 500 — 958 — 1,458 Total 500 — 54,958 — 55,458 Weighted average yield 1.03% —% 5.29% —% 5.25%Estimated Fair Value: Corporate bonds $— $— $54,344 $— $54,344 Other 497 — 973 — 1,470 Total $497 $— $55,317 $— $55,814 Agency mortgage backed securities and beneficial interests in FHLMC securitizations are excluded from the above table because such securitiesare not due at a single maturity date. The weighted average yield of the agency mortgage backed securities and beneficial interests in FHLMC securitizationsas of December 31, 2018 was 2.91%.Loans. The following table sets forth our loans, by loan category, as of December 31: (dollars in thousands) 2018 2017 2016 2015 2014 Recorded investment balance: Loans secured by real estate: Residential properties: Multifamily $1,956,935 $1,935,429 $1,178,003 $627,311 $481,491 Single family 904,828 645,816 602,886 533,257 360,644 Total real estate loans secured by residential properties 2,861,169 2,581,245 1,780,889 1,160,568 842,135 Commercial properties 869,169 696,748 476,959 358,791 205,320 Land 80,187 37,160 24,100 12,320 4,309 Total real estate loans 3,811,119 3,315,153 2,281,948 1,531,679 1,051,764 Commercial and industrial loans 449,805 310,779 237,941 196,584 93,537 Consumer loans 22,699 29,330 32,127 37,206 21,125 Total loans 4,283,623 3,655,262 2,552,016 1,765,469 1,166,426 Premiums, discounts and deferred fees and expenses 10,046 8,465 3,693 14 (34) Total $4,293,669 $3,663,727 $2,555,709 $1,765,483 $1,166,392 Loans and loans held for sale increased by $983 million in 2018 as a result of $1.8 billion of originations and $523 million of loans acquired fromPBB, which were partially offset by the sale of $676 million of multifamily loans and payoffs or scheduled payments of $712 million. Loans and loans heldfor sale increased by $1.0 billion in 2017 as a result of $1.7 billion of originations, 47Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.$227 million of loans acquired from C1B and $8 million of purchases which were partially offset by the sale of $453 million of multifamily loans and payoffsor scheduled payments of $491 million. The scheduled maturities, as of December 31, 2018, 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 orLess Due After One Year ThroughFive Years Due AfterFive Years Loans WithFixed Rates Loan WithAdjustable Rates Land loans $58,455 $12,756 $8,976 $34,361 $45,826 Commercial and industrial loans 145,272 222,965 81,568 178,604 271,201 Deposits: The following table sets forth information with respect to our deposits and the average rates paid on deposits, as of December 31: 2018 2017 2016 (dollars in thousands) Amount WeightedAverage Rate Amount WeightedAverage Rate AmountWeightedAverage Rate Demand deposits: Noninterest-bearing $1,074,661 — $1,097,196 — $661,781 — Interest-bearing 317,380 0.798% 235,294 0.411% 194,274 0.471%Money market and savings 1,190,717 1.115% 1,210,240 0.840% 941,344 0.677%Certificates of deposits 1,950,210 2.142% 900,797 1.189% 629,396 0.589%Total $4,532,968 1.270% $3,443,527 0.634% $2,426,795 0.453%The $1.1 billion increase in deposits during 2018 was due to $478 million of deposits acquired from PBB and increases in our branch deposits andwholesale deposits of $91 million and $790 million, respectively, while our specialty deposits decreased by $268. The $1.0 billion increase in depositsduring 2017 was due to $412 million of deposits acquired from C1B and increases in our specialty deposits and banking office deposits of $267 million and$240 million, respectively.The weighted average rate of interest-bearing deposits increased from 0.62% at December 31, 2016 to 0.83% at December 31, 2017, and to 1.34%at December 31, 2018, while the weighted average interest rates of both interest-bearing and noninterest-bearing deposits, increased from 0.45% at December31, 2016, to 0.63% at December 31, 2017, and to 1.26% at December 31, 2018 as the increase in noninterest-bearing deposits as a percentage of total depositshas offset the impact of the increases in rates on interest-bearing deposits on our overall cost of deposits. The financial impact of the increase in noninterest-bearing deposits is reflected in customer service costs, which are included in noninterest expenses.The maturities of our certificates of deposit of $100,000 or more were as follows as of December 31, 2018: (dollars in thousands) 3 months or less $294,332 Over 3 months through 6 months 63,255 Over 6 months through 12 months 185,410 Over 12 months 65,525 Total $608,522 From time to time, the Bank will utilize brokered deposits as a source of funding. As of December 31, 2018, the Bank held $1.4 billion of depositswhich are classified as brokered deposits.Borrowings: At December 31, 2018, our borrowings consisted of $703 million of overnight FHLB advances at FFB and $5 million of borrowingson our holding company line of credit. At December 31, 2017, our borrowings consisted of $628 million of overnight FHLB advances at the Bank and $50million of borrowings under our holding company line of credit. The overnight FHLB advances were paid in full in the early parts of January 2019 andJanuary 2018, respectively. Because FFB utilizes overnight borrowings, the balance of outstanding borrowings fluctuates on a daily basis. The averagebalance of borrowings at the Bank during 2018 was $581 million, as compared to $519 million during 2017. The weighted average interest rate on theseborrowings was 1.92% during 2018, as compared to 0.98% during 2017. The maximum amount of short-term FHLB advances outstanding at any month-endduring 2018 and 2017, was $773 million, and $818 million, respectively. 48Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Delinquent 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 Current Total (dollars in thousands) 30–59 Days 60-89 Days 90 Daysor More Nonaccrual 2018: Real estate loans: Residential properties $74 $— $499 $651 $1,224 $2,860,539 $2,861,763 Commercial properties 440 117 — 1,607 2,164 867,005 869,169 Land 2,000 — — 697 2,697 77,490 80,187 Commercial and industrial loans 12,541 300 536 8,559 21,936 427,869 449,805 Consumer loans — 7 — 2 9 22,690 22,699 Total $15,055 $424 $1,035 $11,516 $28,030 $4,255,593 $4,283,623 Percentage of total loans 0.35% 0.01% 0.02% 0.27% 0.65% 2017: Real estate loans: Residential properties $78 $— $— $— $78 $2,581,167 $2,581,245 Commercial properties — — 1,320 1,742 3,062 693,686 696,748 Land — — — — — 37,160 37,160 Commercial and industrial loans — — 789 9,617 10,406 300,373 310,779 Consumer loans — — — — — 29,330 29,330 Total $78 $— $2,109 $11,359 $13,546 $3,641,716 $3,655,262 Percentage of total loans 0.00% —% 0.06% 0.31% 0.37% 2016: Real estate loans: Residential properties $— $— $— $3,759 $3,759 $1,777,130 $1,780,889 Commercial properties — — 2,128 1,120 3,248 473,711 476,959 Land — — — — — 24,100 24,100 Commercial and industrial loans — 2 3,800 3,359 7,161 230,780 237,941 Consumer loans — — — — — 32,127 32,127 Total $— $2 $5,928 $8,238 $14,168 $2,537,848 $2,552,016 Percentage of total loans —% 0.00% 0.23% 0.32% 0.56% 49Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.The following table presents the composition of troubled debt restructurings (“TDRs”) by accrual and nonaccrual status as of: December 31, 2018 December 31, 2017 (dollars in thousands) Accrual Nonaccrual Total Accrual Nonaccrual Total Commercial real estate loans $1,264 $1,491 $2,755 $— $1,598 $1,598 Commercial and industrial loans — 2,096 2,096 195 2,698 2,893 Total 1,264 3,587 4,851 195 4,296 4,491 These loans were classified as a TDR as a result of a reduction in required principal payments and/or an extension of the maturity date of the loans.The 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 2018: Real estate loans: Residential properties $2,857,666 $3,446 $— $651 $2,861,763 Commercial properties 845,672 13,024 7,602 2,871 869,169 Land 78,681 — 809 697 80,187 Commercial and industrial loans 431,751 7,723 1,772 8,559 449,805 Consumer loans 22,699 — — — 22,699 Total $4,236,469 $24,193 $10,183 $12,778 $4,283,623 2017: Real estate loans: Residential properties $2,578,773 $192 $2,280 $— $2,581,245 Commercial properties 680,449 6,326 5,936 4,037 696,748 Land 36,321 — 839 — 37,160 Commercial and industrial loans 298,408 865 2,107 9,399 310,779 Consumer loans 29,330 — — — 29,330 Total $3,623,281 $7,383 $11,162 $13,436 $3,655,262 2016: Real estate loans: Residential properties $1,773,296 $1,500 $— $6,093 $1,780,889 Commercial properties 470,484 1,913 2,414 2,148 476,959 Land 24,100 — — — 24,100 Commercial and industrial loans 219,676 3,625 13,887 753 237,941 Consumer loans 32,137 — — — 32,127 Total $2,519,683 $7,038 $16,301 $8,994 $2,552,016 2015: Real estate loans: Residential properties $1,159,029 $1,539 $— $— $1,160,568 Commercial properties 351,988 174 354 6,275 358,791 Land 11,180 — 1,140 — 12,320 Commercial and industrial loans 180,755 4,977 5,165 5,687 196,584 Consumer loans 37,130 — — 76 37,206 Total $1,740,082 $6,690 $6,659 $12,038 $1,765,469 2014: Real estate loans: Residential properties $841,538 $554 $— $43 $842,135 Commercial properties 198,112 1,266 200 5,742 205,320 Land 4,309 — — — 4,309 Commercial and industrial loans 81,067 5,276 1,559 5,635 93,537 Consumer loans 20,962 — 47 116 21,125 Total $1,145,988 $7,096 $1,806 $11,536 $1,166,426 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 to collectall amounts due according to the contractual terms of the loan. We measure impairment using either the 50Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.present value of the expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the properties collateralizing the loan, forcollateral dependent loans. Impairment losses are included in the allowance for loan losses through a charge to provision for loan losses. Adjustments toimpairment losses due to changes in the fair value of the property collateralizing an impaired loan are considered in computing the provision for loan losses.Loans collectively reviewed for impairment include all loans except for loans which are individually reviewed based on specific criteria, such asdelinquency, debt coverage, adequacy of collateral and condition of property collateralizing the loans. Impaired loans include nonaccrual loans (excludingthose collectively reviewed for impairment), certain restructured loans and certain performing loans less than ninety days delinquent (“other impaired loans”)which we believe are not likely to be collected in accordance with contractual terms of the loans.In 2017, 2015, and 2012 we 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) 2018 2017 Outstanding principal balance: Loans secured by real estate: Residential properties $451 $— Commercial properties 10,871 1,525 Land 1,089 1,096 Total real estate loans 12,411 2,621 Commercial and industrial loans 1,150 2,774 Consumer loans 10 — Total loans 13,571 5,395 Unaccreted discount on purchased credit impaired loans (6,490) (1,638)Total $7,081 $3,757 51Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.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 2018: Real estate loans: Residential properties $9,715 $(499) $— $— $9,216 Commercial properties 4,399 359 (211) — 4,547 Land and construction 395 (4) — — 391 Commercial and industrial loans 3,624 4,413 (3,978) 569 4,628 Consumer loans 267 (49) — — 218 Total $18,400 $4,220 $(4,189) $569 $19,000 2017: Real estate loans: Residential properties $6,669 $3,046 $— $— $9,715 Commercial properties 2,983 1,416 — — 4,399 Land and construction 233 162 — — 395 Commercial and industrial loans 5,227 (1,841) — 238 3,624 Consumer loans 288 (21) — — 267 Total $15,400 $2,762 $— $238 $18,400 2016: Real estate loans: Residential properties $6,799 $(130) $— $— $6,669 Commercial properties 1,813 1,051 (50) 169 2,983 Land and construction 103 130 — — 233 Commercial and industrial loans 1,649 3,578 — — 5,227 Consumer loans 236 52 — — 288 Total $10,600 $4,681 $(50) $169 $15,400 2015: Real estate loans: Residential properties $6,546 $253 $— $— $6,799 Commercial properties 1,499 624 (310) — 1,813 Land and construction 67 36 — — 103 Commercial and industrial loans 1,897 1,665 (1,913) — 1,649 Consumer loans 141 95 — — 236 Total $10,150 $2,673 $(2,223) $— $10,600 2014: Real estate loans: Residential properties $6,135 $411 $— $— $6,546 Commercial properties 1,425 74 — — 1,499 Land and construction 37 30 — — 67 Commercial and industrial loans 2,149 (252) — — 1,897 Consumer loans 169 (28) — — 141 Total $9,915 $235 $— $— $10,150 Excluding the loans acquired in an acquisition and any related allocated ALLL, our ALLL as a percentage of total loans was 0.51% and 0.54% asof December 31, 2018, and December 31, 2017, respectively.The 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 52Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.or trends can be uncertain and can be affected by a number of risks and circumstances that are outside of our control. If changes in economic or marketconditions or unexpected subsequent events were to occur, or if changes were made to bank regulatory guidelines or industry standards that are used to assessthe sufficiency of the ALLL, it could become necessary for us to incur additional, and possibly significant, charges to increase the ALLL, which would havethe 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.The 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 UnaccretedCreditComponentOther Loans Evaluated for Impairment Purchased Impaired Total Individually Collectively 2018: Allowance for loan losses: Real estate loans: Residential properties $— $9,216 $— $9,216 $1,724 Commercial properties 126 4,421 — 4,547 1,779 Land — 391 — 391 84 Commercial and industrial loans 290 4,338 — 4,628 633 Consumer loans — 218 — 218 3 Total $416 $18,584 $— $19,000 $4,223 Loans: Real estate loans: Residential properties $651 $2,861,112 $— $2,861,763 $241,698 Commercial properties 2,871 860,835 5,463 869,169 275,516 Land 697 78,681 809 80,187 41,132 Commercial and industrial loans 8,559 440,437 809 449,805 61,183 Consumer loans — 22,699 — 22,699 366 Total $12,778 $4,263,764 $7,081 $4,283,623 $619,895 2017: Allowance for loan losses: Real estate loans: Residential properties $— $9,715 $— $9,715 $248 Commercial properties — 4,399 — 4,399 1,449 Land — 395 — 395 4 Commercial and industrial loans 909 2,715 — 3,624 1,204 Consumer loans — 267 — 267 100 Total $909 $17,491 $— $18,400 $3,005 Loans: Real estate loans: Residential properties $— $2,581,245 $— $2,581,245 $26,605 Commercial properties 4,037 691,632 1,079 696,748 168,057 Land — (837) 837 — 167 Commercial and industrial loans 9,399 299,539 1,841 310,779 62,849 Consumer loans — 29,330 — 29,330 2,899 Total $13,436 $3,600,909 $3,757 $3,618,102 $260,577 53Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.(dollars in thousands) Allowance for Loan Losses UnaccretedCreditComponentOther Loans Evaluated for Impairment Purchased Impaired Total Individually Collectively 2016: Allowance for loan losses: Real estate loans: Residential properties $— $6,669 $— $6,669 $128 Commercial properties — 2,983 — 2,983 136 Land — 233 — 233 2 Commercial and industrial loans — 5,227 — 5,227 147 Consumer loans — 288 — 288 19 Total $— $15,400 $— $15,400 $432 Loans: Real estate loans: Residential properties $6,093 $1,774,796 $— $1,780,889 $12,373 Commercial properties 2,148 474,634 177 476,959 24,796 Land — 24,100 — 24,100 437 Commercial and industrial loans 753 233,992 3,196 237,941 20,165 Consumer loans — 32,127 — 32,127 1,266 Total $8,994 $2,539,649 $3,373 $2,552,016 $59,037 2015: Allowance for loan losses: Real estate loans: Residential properties $— $6,799 $— $6,799 $127 Commercial properties 30 1,783 — 1,813 363 Land — 103 — 103 42 Commercial and industrial loans — 1,649 — 1,649 187 Consumer loans — 236 — 236 13 Total $30 $10,570 $— $10,600 $732 Loans: Real estate loans: Residential properties $— $1,160,568 $— $1,160,568 $7,747 Commercial properties 6,275 352,162 354 358,791 43,287 Land — 11,180 1,140 12,320 4,267 Commercial and industrial loans 5,687 185,732 5,165 196,584 28,231 Consumer loans 76 37,130 — 37,206 1,761 Total $12,038 $1,746,772 $6,659 $1,765,469 $85,293 2014: Allowance for loan losses: Real estate loans: Residential properties $— $6,586 $— $6,586 $26 Commercial properties 26 1,500 — 1,526 193 Land — — — — 4 Commercial and industrial loans 686 1,211 — 1,897 45 Consumer loans — 141 — 141 — Total $712 $9,438 $— $10,150 $268 Loans: Real estate loans: Residential properties $43 $842,092 $— $842,135 $2,861 Commercial properties 5,742 199,378 200 205,320 21,126 Land — 4,309 — 4,309 1,099 Commercial and industrial loans 5,635 86,343 1,559 93,537 5,893 Consumer loans $116 20,962 47 21,125 8 Total 11,536 $1,153,084 $1,806 $1,166,426 $30,987 54Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.The column labeled “Unaccreted Credit Component Other Loans” represents the amount of unaccreted credit component discount for the otherloans acquired in the DCB and PRB acquisitions, and the stated principal balance of the related loans. The discount is equal to 0.74% and 1.15% of thestated principal balance of these loans as of December 31, 2018 and 2017, respectively. In addition to this unaccreted credit component discount, anadditional $0.4 million and $0.2 million of the ALLL were provided for these loans as of December 31, 2018 and 2017, respectively.LiquidityLiquidity management focuses on our ability to generate, on a timely and cost-effective basis, cash sufficient to meet the funding needs of currentloan demand, deposit withdrawals, principal and interest payments with respect to outstanding borrowings and to pay operating expenses. Our liquiditymanagement is both a daily and long-term function of funds management. Liquid assets are generally invested in marketable securities or held as cash at theFRBSF or other financial institutions.We monitor our liquidity in accordance with guidelines established by our Board of Directors and applicable regulatory requirements. Our need forliquidity is affected by our loan activity, net changes in deposit levels and the maturities of our borrowings. The principal sources of our liquidity consist ofdeposits, loan interest and principal payments and prepayments, investment management and consulting fees, FHLB advances and proceeds from borrowingsand sales of FFI common stock. The remaining balances of the Company’s lines of credit available to draw down totaled $1.5 billion at December 31, 2018.Cash Flows Provided by Operating Activities. During the year ended December 31, 2018 operating activities provided net cash of $51 million,comprised primarily of our net income of $43 million and $4 million increase in other liabilities. During the year ended December 31, 2017 operatingactivities provided net cash of $38 million, comprised primarily of our net income of $28 million and $5 million change in deferred tax benefits.Cash Flows Used in Investing Activities. During the year ended December 31, 2018, investing activities used net cash of $680 million, primarily tofund a $1.1 billion net increase in loans and $366 million in purchases of securities AFS, offset partially by $674 million in proceeds from loan sales, $48million in cash received from the PBB acquisition, and $81 million in principal colllections of securities AFS. During the year ended December 31, 2017,investing activities used net cash of $569 million, primarily to fund a $1.2 billion net increase in loans and a $10 million net increase in securities AFS, offsetpartially by $450 million in proceeds from loan sales, $91 million in cash received from the C1B acquisition, and $17 million in proceeds from sales ofFHLB Stock.Cash Flow Provided by Financing Activities. During the year ended December 31, 2018, financing activities provided net cash of $575 million,consisting primarily of a net increase of $612 million in deposits and $14 million in proceeds from the sale of stock, offset partially by a net decrease of $45million in borrowings. During the year ended December 31, 2017, financing activities provided net cash of $54 million, consisting primarily of a net increaseof $605 million in deposits, $50 million increase in borrowings, and $28 million proceeds from the sale of stock, offset partially by a net decrease of $622million in FHLB advances.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, 2018 and 2017, the loan-to-deposit ratios at FFB were 106%, and 111%,respectively.Contractual ObligationsThe following table summarizes the indicated contractual obligations of the Company as of the December 31, 2018: 55Source: First Foundation Inc., 10-K, March 01, 2019Powered 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. Payments Due by Period (dollars in thousands) Total Less Than1 Year 1 – 3 Years 3 – 5 Years More Than5 Years FHLB Advances $703,000 $703,000 $— $— $— FFI line of credit loan 5,000 — — 5,000 — Operating lease obligations 25,782 6,075 11,292 6,283 2,132 Total $733,782 $709,075 $11,292 $11,283 $2,132 Off-Balance Sheet ArrangementsThe following table provides the off-balance sheet arrangements of the Company as of December 31, 2018: (dollars in thousands) Commitments to fund new loans $27,688 Commitments to fund under existing loans, lines of credit 352,148 Commitments under standby letters of credit 12,001 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, 2018, FFB was obligated on $198 million of letters of creditto the FHLB which were being used as collateral for public fund deposits, including $163 million of deposits from the State of California.Asset 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 parallel changes in interest rates on net interest income overa 12 month forecast period; and (iii) economic value of equity calculations which measure the sensitivity of our economic value of equity to simultaneousparallel changes in interest rates. 56Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.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, 2018: (dollars in thousands) Less than1 year From 1 to3 Years From 3 to5 Years Over 5Years Total Interest-earnings assets: Cash equivalents $33,231 $— $— $— $33,231 Securities, FHLB stock 417,929 104,200 133,541 176,727 832,397 Loans 1,115,720 1,350,524 1,266,870 1,068,198 4,801,312 Interest-bearing liabilities: Deposits: Interest-bearing checking (317,380) — — — (317,380) Money market and savings (1,190,717) — — — (1,190,717) Certificates of deposit (1,816,085) (132,533) (1,592) — (1,950,210) Borrowings (703,000) (5,000) — — (708,000) Net: Current Period $(2,460,302) $1,317,191 $1,398,819 $1,244,925 $1,500,633 Net: Cumulative $(2,460,302) $(1,143,111) $255,708 $1,500,633 The cumulative positive total of $1.5 billion reflects the funding provided by noninterest-bearing deposits and equity. Because we had a $2.5billion net negative position at December 31, 2018 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.Net Interest Income Simulations (“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, 2018 are as follows: Assumed Instantaneous Change in Interest Rates Estimated Increase(Decrease) in NetInterest Income + 100 basis points (8.2)%+ 200 basis points (16.3)%+ 300 basis points (24.6)%+ 400 basis points (33.8)%- 100 basis points 8.0 %- 200 basis points 16.2 %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, but are not limited to, non-parallel yield curve shifts, changes in market interest rate spreads and the actual reaction tochanges in interest rate levels of interest-earning assets and interest-bearing liabilities. It is not uncommon for rates on certain assets or liabilities to lagbehind changes in the market 57Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.rates of interest. Additionally, prepayments of loans and early withdrawals of certificates of deposit could cause interest sensitivities to vary.Economic Value of Equity Calculations (“EVE”). The EVE measures the sensitivity of our market value equity to simultaneous changes in interestrates. EVE is derived by subtracting the economic value of FFB’s liabilities from the economic value of its assets, assuming current and hypothetical interestrate 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, 2018 are as follows: Assumed Simultaneous Change in Interest Rates EstimatedIncrease (Decrease)in EconomicValue of Equity + 100 basis points (9.8)% + 200 basis points (19.2)% + 300 basis points (28.5)% + 400 basis points (38.1)% - 100 basis points 12.1 % - 200 basis points 33.8 % 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, but are not limited to, non-parallel yield curve shifts, changes in market interest ratespreads and the actual reaction to changes in interest rate levels of interest-earning assets and interest-bearing liabilities. It is not uncommon for rates oncertain assets or liabilities to lag behind changes in the market rates of interest. Additionally, prepayments of loans and early withdrawals of certificates ofdeposit could cause interest sensitivities to vary.The 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.Capital Resources and DividendsThe New Capital Rules became effective on January 1, 2015, with certain of their provisions phased-in over a several years through January 1,2019. The New Capital Rules apply to United States based bank holding companies and federally insured depository institutions and require the Company(on a consolidated basis) and FFB (on a stand-alone basis) to meet specific capital adequacy requirements that, for the most part, involve quantitativemeasures, primarily in terms of the ratios of their capital to their assets, liabilities, and certain off-balance sheet items, calculated under regulatory accountingpractices. For additional information regarding these New Capital Rules, see Item 1 “Business —Supervision and Regulation—Capital RequirementsApplicable to Banks and Bank Holding Companies” in Part I aboveIn addition, prompt correct action regulations place a federally insured depository institution, such as FFB, into one of five capital categories onthe basis of its capital ratios: (i) well capitalized; (ii) adequately capitalized; (iii) undercapitalized; (iv) significantly undercapitalized; or (v) criticallyundercapitalized. A depository institution’s primary federal regulatory agency may determine that, based on certain qualitative assessments, the depositoryinstitution should be assigned to a lower capital category than the one indicated by its capital ratios. At each successive lower capital category, a depositoryinstitution is subject to greater operating restrictions and increased regulatory supervision by its federal bank regulatory agency. 58Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.The following table sets forth the capital and capital ratios of FFI (on a consolidated basis) and FFB (on a stand-alone basis) as of the respectivedates and as compared to the respective regulatory requirements applicable to them: Actual For CapitalAdequacy Purposes To Be Well CapitalizedUnder Prompt Corrective Action Provisions (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio FFI December 31, 2018 CET1 capital ratio $460,600 10.67% $194,179 4.50% Tier 1 leverage ratio 460,600 8.39% 219,694 4.00% Tier 1 risk-based capital ratio 460,600 10.67% 258,906 6.00% Total risk-based capital ratio 481,476 11.16% 345,207 8.00% December 31, 2017 CET1 capital ratio $366,236 11.99% $137,435 4.50% Tier 1 leverage ratio 366,236 8.44% 173,514 4.00% Tier 1 risk-based capital ratio 366,236 11.99% 183,246 6.00% Total risk-based capital ratio 385,236 12.61% 244,328 8.00% December 31, 2016 CET1 capital ratio $285,754 12.80% $100,432 4.50% Tier 1 leverage ratio 285,754 8.76% 130,525 4.00% Tier 1 risk-based capital ratio 285,754 12.80% 133,910 6.00% Total risk-based capital ratio 301,664 13.52% 178,547 8.00% FFB December 31, 2018 CET1 capital ratio $453,248 10.51% $194,058 4.50% $280,306 6.50%Tier 1 leverage ratio 453,248 8.26% 219,568 4.00% 274,461 5.00%Tier 1 risk-based capital ratio 453,248 10.51% 258,744 6.00% 344,992 8.00%Total risk-based capital ratio 474,124 10.99% 344,992 8.00% 431,240 10.00% December 31, 2017 CET1 capital ratio $398,709 13.07% $137,290 4.50% $198,308 6.50%Tier 1 leverage ratio 398,709 9.20% 173,363 4.00% 216,703 5.00%Tier 1 risk-based capital ratio 398,709 13.07% 183,053 6.00% 244,071 8.00%Total risk-based capital ratio 417,709 13.69% 244,071 8.00% 305,089 10.00%December 31, 2016 CET1 capital ratio $272,221 12.23% $100,166 4.50% $144,685 6.50%Tier 1 leverage ratio 272,221 8.36% 130,305 4.00% 162,881 5.00%Tier 1 risk-based capital ratio 272,221 12.23% 133,555 6.00% 178,074 8.00%Total risk-based capital ratio 288,131 12.94% 178,074 8.00% 222,592 10.00%As of each of the dates set forth in the above table, the Company exceeded the minimum required capital ratios applicable to it and FFB’s capitalratios exceeded the minimums necessary to qualify as a well-capitalized depository institution under the prompt corrective action regulations. The requiredratios for capital adequacy set forth in the above table do not include the New Capital Rules’ additional capital conservation buffer, though each of theCompany and FFB maintained capital ratios necessary to satisfy the capital conservation buffer requirements as of the dates indicated.As of December 31, 2018, the amount of capital at FFB in excess of amounts required to be well capitalized for purposes of the prompt correctiveaction regulations was $173 million for the CET1 capital ratio, $179 million for the Tier 1 Leverage Ratio, $108 million for the Tier 1 risk-based capital ratioand $43 million for the Total risk-based capital ratio. During the year ended December 31, 2017, FFI made capital contributions to FFB of $65 million. As of December 31, 2018, FFI had $15.8 millionof available capital and, therefore, has the ability and financial resources to contribute additional capital to FFB, if needed.On January 29, 2019, the Board of Directors declared an initial quarterly cash dividend of $0.05 per common share to be paid on March 15, 2019to stockholders of record as of the close of business on March 1, 2019. It is our current intention to continue to pay quarterly dividends. The amount anddeclaration of future cash dividends are subject to approval by our Board of Directors and certain regulatory restrictions which are discussed in Item 1“Business—Supervision and Regulation—Dividends and Stock Repurchases” in Part I above. Additionally, under the terms of the holding company line ofcredit agreement, FFI may only declare and pay a dividend 59Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.if the total amount of dividends and stock repurchases during the current twelve months does not exceed 50% of FFI’s net income for the same twelve monthperiod. We did not pay dividends in 2018 or 2017.We had no material commitments for capital expenditures as of December 31, 2018. However, we intend to take advantage of opportunities thatmay arise in the future to grow our businesses, which may include opening additional offices or acquiring complementary businesses that we believe willprovide us with attractive risk-adjusted returns. As a result, we may seek to obtain additional borrowings and to sell additional shares of our common stock toraise funds which we might need for these purposes. There is no assurance, however, that, if required, we will succeed in obtaining additional borrowings orselling additional shares of our common stock on terms that are acceptable to us, if at all, as this will depend on market conditions and other factors outside ofour control, as well as our future results of operations. See Item 1A – “Risk Factors” in Part I above for information regarding the impact that future sales ofour common stock may have on the share ownership of our existing stockholders.At-the-Market OfferingOn February 16, 2017, the Company and the Bank entered into an Equity Distribution Agreement (the “Distribution Agreement”) with FBRCapital Markets & Co., Raymond James & Associates, Inc., Sandler O’Neill & Partners, L.P., and D.A. Davidson & Co. (collectively, the “DistributionAgents”) to sell shares of the Company’s common stock, par value $0.001 per share (the “ATM Shares”), having an aggregate offering price of up to $80million, from time to time, through an “at-the-market” equity offering program (the “ATM Program”). The sales of the ATM Shares may be made innegotiated transactions or other transactions that are deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act of 1933. TheCompany has no obligation to sell any of the ATM Shares under the Distribution Agreement, and may at any time suspend sales of the ATM Shares under theDistribution Agreement.The Company has agreed to pay the Distribution Agents commissions for their services in acting as agent in the sale of ATM Shares, and theCompany advanced $90,000 to the Distribution Agents for their out-of-pocket legal fees incurred in connection with the ATM Program. The DistributionAgents are entitled to compensation at a commission rate equal to 2.0% of the gross proceeds from the sale of ATM Shares pursuant to the DistributionAgreement; provided, however, that the compensation payable to each Distribution Agent upon the sale of ATM Shares pursuant to the DistributionAgreement will be reduced by $22,500 in a manner such that no compensation will be paid to a Distribution Agent until the amount of the commissionearned by such Distribution Agent exceeds $22,500. The Distribution Agreement contains representations and warranties and covenants that are customaryfor transactions of this type. In addition, the Company has agreed to indemnify the Distribution Agents against certain liabilities on customary terms, subjectto limitations on such arrangements imposed by applicable law and regulation.During the second quarter of 2017, we commenced sales of common stock through the ATM Program. During 2017, we sold 1,382,506 shares ofcommon stock through the ATM Program, realizing $22.8 million in net proceeds. The details of the shares of common stock sold through the ATM Programduring 2018 are as follows: Number ofShares Sold WeightedAverage Price Net Proceeds (in thousands, except share and per share amounts) February, 2018 400,288 $18.27 7,166 March, 2018 225,442 $18.80 4,176 Total 625,730 $18.46 $11,342 As of December 31, 2018, the remaining dollar value of common stock we had available to sell under the ATM Program was $45.2 million. Asrequired by SEC rules, we will not resume sales under the ATM Program while we are purchasing shares of our common stock under our stock repurchaseprogram. Item 7A. Quantitative and Qualitative Disclosures About Market RiskFor quantitative and qualitative disclosures regarding market risk in the Company’s portfolio, please see Item 7 “Management’s Discussion andAnalysis—Asset and Liability Management: Interest Rate Risk” in Part II above. 60Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Item 8.Financial Statements and Supplementary DataFIRST FOUNDATION INCINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements 62Consolidated Balance Sheets: December 31, 2018 and December 31, 2017 64Consolidated Income Statements: Years Ended December 31, 2018, December 31, 2017, and December 31, 2016 65Consolidated Statements of Comprehensive Income: Years Ended December 31, 2018, December 31, 2017, and December 31, 2016 66Consolidated Statements of Changes in Shareholders’ Equity: Years Ended December 31, 2018, December 31, 2017, and December 31, 2016 67Consolidated Statements of Cash Flows: Years Ended December 31, 2018, December 31, 2017, and December 31, 2016 68Notes to the Consolidated Financial Statements 69 61Source: First Foundation Inc., 10-K, March 01, 2019Powered 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. Report of Independent Registered Public Accounting Firm To the Board of Directors and ShareholdersFirst Foundation, Inc. and SubsidiariesIrvine, California Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of First Foundation, Inc. and Subsidiaries (the "Company") as of December 31, 2018 and2017, and the related consolidated income statements and statements of comprehensive income, changes in shareholders' equity, and cash flows for each ofthe years in the three-year period ended December 31, 2018, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control -Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31,2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018 in conformity withaccounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effectiveinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework: (2013) issued byCOSO. Basis for Opinions The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for itsassessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control overFinancial Reporting. Our responsibility is to express an opinion on the Company's financial statements and an opinion on the Company's internal controlover financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (UnitedStates) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicablerules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control overfinancial reporting was maintained in all material respects. 62Source: First Foundation Inc., 10-K, March 01, 2019Powered 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. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due toerror or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amountsand disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made bymanagement, and as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting includedobtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating thedesign and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considerednecessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain tothe maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a materialeffect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate becauseof changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We have served as the Company's auditor since 2007. Laguna Hills, CaliforniaMarch 1, 2019 63 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share amounts) December 31, 2018 2017 ASSETS Cash and cash equivalents $67,312 $120,394 Securities available-for-sale (“AFS”) 809,569 519,364 Loans held for sale 507,643 154,380 Loans, net of deferred fees 4,293,669 3,663,727 Allowance for loan and lease losses (“ALLL”) (19,000) (18,400)Net loans 4,274,669 3,645,327 Premises and equipment, net 9,145 6,581 Investment in FHLB stock 20,307 19,060 Deferred taxes 13,251 12,143 Real estate owned (“REO”) 815 2,920 Goodwill and intangibles 99,482 33,576 Other assets 38,219 27,440 Total Assets $5,840,412 $4,541,185 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Deposits $4,532,968 $3,443,527 Borrowings 708,000 678,000 Accounts payable and other liabilities 40,260 24,707 Total Liabilities 5,281,228 4,146,234 Commitments and contingencies — — Shareholders’ Equity Common Stock, par value $.001: 70,000,000 shares authorized; 44,496,007 and 38,207,766 shares issuedand outstanding at December 31, 2018 and December 31, 2017, respectively 44 38 Additional paid-in-capital 431,832 314,501 Retained earnings 128,461 85,503 Accumulated other comprehensive (loss), net of tax (1,153) (5,091)Total Shareholders’ Equity 559,184 394,951 Total Liabilities and Shareholders’ Equity $5,840,412 $4,541,185 (See accompanying notes to the consolidated financial statements) 64 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.CONSOLIDATED INCOME STATEMENTS(In thousands, except share and per share amounts) For the Year Ended December 31, 2018 2017 2016 Interest income: Loans $186,211 $121,707 $85,080 Securities 16,855 12,407 12,781 FHLB stock, fed funds sold and interest-bearing deposits 4,240 2,687 2,781 Total interest income 207,306 136,801 100,642 Interest expense: Deposits 38,776 17,443 8,916 Borrowings 12,920 5,740 2,277 Total interest expense 51,696 23,183 11,193 Net interest income 155,610 113,618 89,449 Provision for loan losses 4,220 2,762 4,681 Net interest income after provision for loan losses 151,390 110,856 84,768 Noninterest income: Asset management, consulting and other fees 28,748 26,710 24,384 Gain on sale of loans 419 7,029 7,812 Loss on capital market activities — — (1,043) Other income 6,604 4,980 3,407 Total noninterest income 35,771 38,719 34,560 Noninterest expense: Compensation and benefits 67,508 56,558 48,574 Occupancy and depreciation 19,779 15,396 11,978 Professional services and marketing costs 8,583 7,687 9,825 Customer service costs 15,077 7,041 1,679 Other expenses 16,128 12,294 8,938 Total noninterest expense 127,075 98,976 80,994 Income before taxes on income 60,086 50,599 38,334 Taxes on income 17,128 23,017 15,031 Net income $42,958 $27,582 $23,303 Net income per share: Basic $1.02 $0.80 $0.72 Diluted $1.01 $0.78 $0.70 Shares used in computation: Basic 42,092,361 34,482,630 32,365,800 Diluted 42,567,108 35,331,059 33,471,816 (See accompanying notes to the consolidated financial statements) 65 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In thousands) For the Year Ended December 31, 2018 2017 2016 Net income $42,958 $27,582 $23,303 Other comprehensive income (loss): Unrealized holding gains (losses) on securities arising during the period 5,567 1,717 (6,697)Other comprehensive income (loss) before tax 5,567 1,717 (6,697)Income tax (expense) benefit related to items of other comprehensive income (1,629) (707) 1,961 Other comprehensive income (loss) 3,938 1,010 (4,736) Less: Reclassification adjustment for gains (loss) included in net earnings — — 1,307 Income tax (expense) benefit related to reclassification adjustment — — (512)Reclassification adjustment for gains included in net earnings, net of tax — — 795 Other comprehensive income (loss), net of tax 3,938 1,010 (3,941)Total comprehensive income $46,896 $28,592 $19,362 (See accompanying notes to the consolidated financial statements) 66 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.CONSOLIDATED STATEMENTS OF CHANGESIN SHAREHOLDERS’ EQUITY(In thousands, except share amounts) Common Stock AdditionalPaid-in-Capital RetainedEarnings AccumulatedOtherComprehensiveIncome (Loss) Total Numberof Shares Amount Balance: December 31, 2015 31,961,052 16 227,262 33,762 (1,304) 259,736 Net income — — — 23,303 — 23,303 Other comprehensive loss — — — — (3,941) (3,941)Stock based compensation — — 899 — — 899 Issuance of common stock: Exercise of options 690,592 — 4,267 — — 4,267 Issuance of restricted stock 67,988 — — — — — Balance: December 31, 2016 32,719,632 16 232,428 57,065 (5,245) 284,264 Effect of stock split — 17 (17) — — — Net income — — — 27,582 — 27,582 Other comprehensive income Other Comprehensive Income — — — — 1,010 1,010 Reclassification of Stranded Tax Effects — — — 856 (856) — Stock based compensation — — 1,838 — — 1,838 Issuance of common stock: Exercise of options 1,072,000 1 5,546 — — 5,547 Stock grants – vesting of RSUs 78,005 — — — — — Stock issued in acquisition 2,955,623 3 51,868 — — 51,871 Capital raise 1,382,506 1 22,838 — — 22,839 Balance: December 31, 2017 38,207,766 $38 $314,501 $85,503 $(5,091) $394,951 Net income — — — 42,958 — 42,958 Other comprehensive income — — — — 3,938 3,938 Stock based compensation — — 2,637 — — 2,637 Issuance of common stock: Exercise of options 308,334 — 2,356 — — 2,356 Stock grants – vesting of RSUs 154,884 — — — — — Stock issued in acquisition 5,234,593 5 101,494 — — 101,499 Capital raise 625,730 1 11,341 — — 11,342 Stock repurchase (35,300) — (497) — — (497)Balance: December 31, 2018 44,496,007 $44 $431,832 $128,461 $(1,153) $559,184 (See accompanying notes to the consolidated financial statements) 67 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) For the Year Ended December 31, 2018 2017 2016 Cash Flows from Operating Activities: Net income $42,958 $27,582 $23,303 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 4,220 2,762 4,681 Stock–based compensation expense 2,637 1,838 899 Depreciation and amortization 2,751 2,384 1,858 Deferred tax expense 1,192 4,511 1,337 Amortization of core deposit intangible 2,043 394 239 Amortization of mortgage servicing rights 1,076 555 184 Amortization of premiums on purchased loans - net (6,689) (586) (1,200)Gain on sale of REO — (104) — Gain on sale of loans (419) (7,029) (7,812)Gain on sale of securities — — (1,307)Loss from hedging activities 354 — — Increase in other assets (3,578) (1,541) (2,089)Increase (decrease) in accounts payable and other liabilities 4,436 7,106 (323)Net cash provided by operating activities 50,981 37,872 19,770 Cash Flows from Investing Activities: Net increase in loans (1,129,231) (1,238,225) (1,348,286)Proceeds from sale of loans 674,019 457,498 311,709 Proceeds from sale of REO 2,577 438 4,652 Purchase of premises and equipment (2,710) (2,235) (5,935)Recovery of allowance for loan losses 569 — — Purchases of AFS securities (365,519) (29,338) (145,614)Proceeds from sale of securities 9,982 62,174 104,146 Maturities of AFS securities 81,199 73,593 91,128 Purchase of REO property — (404) — Cash in from merger 47,582 91,018 — Sale (purchase) of FHLB stock, net 1,982 16,500 (12,258)Net cash used in investing activities (679,550) (568,981) (1,000,458)Cash Flows from Financing Activities: Increase in deposits 611,856 605,171 904,619 Net (decrease) increase in FHLB advances (4,570) (622,000) 454,000 Line of credit net change – borrowings (paydowns), net (45,000) 50,000 — Payoff of acquired debt — (8,000) — Proceeds from the sale and issuance of stock, net 13,698 28,386 4,267 Repurchase of stock (497) — — Net cash provided by financing activities 575,487 53,557 1,362,886 Increase (decrease) in cash and cash equivalents (53,082) (477,552) 382,198 Cash and cash equivalents at beginning of year 120,394 597,946 215,748 Cash and cash equivalents at end of year $67,312 $120,394 $597,946 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $46,043 $21,704 $10,695 Income taxes $16,646 $14,655 $17,156 Noncash transactions: Transfer of loans to loans held for sale $1,027,478 $357,462 $519,721 Mortgage servicing rights from loan sales $2,646 3,232 2,190 Chargeoffs (recoveries) against allowance for loans losses $4,189 $(238) $(119)Transfer from loans to REO $— $1,520 $2,350 (See accompanying notes to the consolidated financial statements) 68 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears Ended December 31, 2018, 2017, and 2016 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBusinessFirst Foundation Inc. (“FFI”) is a financial services holding company whose operations are conducted through its wholly owned subsidiaries: FirstFoundation Advisors (“FFA”) and First Foundation Bank (“FFB” or the “Bank”) and the wholly owned subsidiaries of FFB, First Foundation InsuranceServices (“FFIS”) and Blue Moon Management, LLC (collectively the “Company”). FFI also has two inactive wholly owned subsidiaries, First FoundationConsulting (“FFC”) and First Foundation Advisors, LLC (“FFA LLC”). In addition, FFA has set up a limited liability company, which is not included in theseconsolidated financial statements, as a private investment fund to provide an investment vehicle for its clients. FFI is incorporated in the state of Delaware.The corporate headquarters for all of the companies is located in Irvine, California. The Company has offices in California, Nevada, and Hawaii.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) financial, investment and economic advisory and related services to high net-worth individuals and their families, family-owned businesses,and other related organizations; and (iii) support services involving the processing and transmission of financial and economic data for charitableorganizations. At the end of 2018, these services were provided to approximately 1,500 clients, primarily located in Southern California, with an aggregate of$3.9 billion of assets under management.The Bank commenced operations in 2007, is incorporated in the state of California and currently operates in California, Nevada, and in Hawaii.The Bank offers a wide range of deposit instruments including personal and business checking and savings accounts, including interest-bearing negotiableorder of withdrawal (“NOW”) accounts, money market accounts, and time certificates of deposit (“CD”) accounts. As a lender, the Bank originates, and retainsfor its portfolio, loans secured by real estate and commercial loans. Over 90% of the Bank’s loans are to clients located in California. The Bank also offers awide range of specialized services including trust services, on-line banking, remote deposit capture, merchant credit card services, ATM cards, Visa debitcards, business sweep accounts, and through FFIS, insurance brokerage services. The Bank has a state non-member bank charter and is subject to continuedexamination by the California Department of Business Oversight and the Federal Deposit Insurance Corporation (“FDIC”).At December 31, 2018, the Company employed 482 employees.Basis of PresentationThe consolidated financial statements have been prepared in conformity with U. S. generally accepted accounting standards and prevailingpractices within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions thataffect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses during the reporting periods and relateddisclosures. Actual results could differ significantly from those estimates.The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All inter-company balances andtransactions have been eliminated in consolidation.Variable Interest EntitiesThe Company may have variable interests in Variable Interest Entities (“VIEs”) arising from debt, equity or other monetary interests in an entity,which change with fluctuations in the fair value of the entity's assets. VIEs are entities that, by design, either (1) lack sufficient equity to permit the entity tofinance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have the ability to makesignificant decisions relating to the entity's operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have theright to receive the residual returns of the entity. The primary beneficiary of a VIE (i.e., the party that has a controlling financial interest) is required toconsolidate the assets and liabilities of the VIE. The primary beneficiary is the party that has both (1) the power to direct the activities of an entity that mostsignificantly impact the VIE's economic performance; and (2) through its interests in the VIE, the obligation to absorb losses or the right to receive benefitsfrom the VIE that could potentially be significant to the VIE. 69Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 The Company has sold loans, in 2018, 2016 and 2015, through securitizations sponsored by a government sponsored entity, Freddie Mac, whoalso provided credit enhancement of the loans through certain guarantee provisions. The Company retained the right to provide servicing for the loansexcept for special servicing for which an unrelated third party was engaged by the VIE. For the 2016 and 2015 securitizations, the Company acquired the “B”piece of the securitizations, which is structured to absorb any losses from the securitizations, and interest only strips from the securitization. For the 2018securitization, the Company provides collateral to support its obligation to reimburse for credit losses incurred on loans in the securitization. Because theCompany does not act as the special servicer for the VIE and because of the power of Freddie Mac over the VIE that holds the assets from the mortgage loansecuritizations, the Company is not the primary beneficiary of the VIE and therefore the VIE is not consolidated.ReclassificationsCertain amounts in the 2017 consolidated financial statements have been reclassified to conform to the 2018 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 FDIC insured limits. However, as the Bank places these deposits with major well-capitalizedfinancial institutions and monitors the financial condition of these institutions, management believes the risk of loss to be minimal. The Bank maintains mostof its excess cash at the Federal Reserve Bank, with well-capitalized correspondent banks or with other depository institutions at amounts less than the FDICinsured limits. At December 31, 2018, included in cash and cash equivalents were $32.8 million in funds held at the 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. TheBank was in compliance with its reserve requirements as of December 31, 2018.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 premiums anddiscounts that are recognized in interest income using the interest method over the period to maturity. Investments not classified as trading securities nor asheld-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. Declinesin the fair value of individual held-to-maturity and available-for-sale securities below their cost that are considered other-than-temporary impairment(“OTTI”) result in write-downs of the individual securities to their fair value. The credit component of any OTTI related write-downs is charged againstearnings.Management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such anevaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition andnear-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 security inan 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.70 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Company compares the presentvalue of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. OTTI is deemed to haveoccurred if there has been an adverse change in the remaining expected future cash flows.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 over therespective 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.Loans Held for InvestmentLoans held for investment are reported at the principal amount outstanding, net of cumulative chargeoffs, interest applied to principal (for loansaccounted for using the cost recovery method), unamortized net deferred loan origination fees and costs and unamortized premiums or discounts onpurchased loans. Interest on loans is accrued and recognized as interest income at the contractual rate of interest. When a loan is designated as held forinvestment, the intent is to hold these loans for the foreseeable future or until maturity or payoff. If subsequent changes occur, the Company may change itsintent to hold these loans. Once a determination has been made to sell such loans, they are immediately transferred to loans held for sale and carried at thelower of cost or fair value.Loans Held for SaleLoans designated for sale through securitization or in the secondary market are classified as loans held for sale. Loans held for sale are accountedfor at the lower of amortized cost or fair value. The fair value of loans held for sale is generally based on observable market prices from other loans in thesecondary market that have similar collateral, credit, and interest rate characteristics. If quoted market prices are not readily available, the Company mayconsider other observable market data such as dealer quotes for similar loans or forward sale commitments. In certain cases, the fair value may be based on adiscounted cash flow model. Related gains and losses are recognized in net gain on mortgage loan origination and sale activities. Direct loan originationcosts and fees for loans classified as held for sale are deferred at origination and recognized in earnings at the time of sale.Nonaccrual LoansLoans are placed on nonaccrual status when the full and timely collection of principal and interest is doubtful, generally when the loan becomes90 days or more past due for principal or interest payment. All payments received on nonaccrual loans are accounted for using the cost recovery method.Under the cost recovery method, all cash collected is applied to first reduce the principal balance. A loan may be returned to accrual status if all delinquentprincipal and interest payments are brought current and the collectability of the remaining principal and interest payments in accordance with the loanagreement is reasonably assured. Loans that are well secured and in the collection process may be maintained on accrual status, even if they are 90 days ormore past due.Purchased Credit Impaired LoansThe Company may purchase individual loans and groups of loans which have shown evidence of credit deterioration and are considered creditimpaired. Purchased credit impaired loans are recorded at the amount paid and there is no carryover of the seller’s allowance for loan losses.Purchased credit impaired loans are accounted for individually or aggregated into pools of loans based on common risk characteristics such as,credit score, loan type, and date of origination. The Company estimates the amount and timing of expected cash flows for each loan or pool, and the expectedcash flows in excess of amount paid is recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loan’s orpool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference). Over the life of the loan or pool, expected cashflows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded by an increase in the allowancefor loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.71 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 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 losses arecharged 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 be unableto collect all amounts due according to the contractual terms of the loan agreement. The Bank bases the measurement of loan impairment using either thepresent 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. Impairmentlosses are included in the allowance for loan losses through a charge to provision for loan losses. Adjustments to impairment losses due to changes in the fairvalue of impaired loans’ collateral properties are included in the provision for loan losses. The Bank’s impaired loans include nonaccrual loans (excludingthose collectively reviewed for impairment), certain restructured loans and certain performing loans less than ninety days delinquent (“other impaired loans”)that the Bank believes will likely not be collected in accordance with contractual terms of the loans. Loans, for which the terms have been modified resultingin a concession, and for which the borrower is experiencing financial difficulties, are generally considered troubled debt restructurings and classified asimpaired.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.General reserves cover non-impaired loans and are based on historical loss rates for each portfolio segment, adjusted for the effects of qualitative orenvironmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical loss experience.Because the Bank has not experienced any meaningful amount of losses in any of its current portfolio segments, the Bank calculates the historical loss rateson industry data, specifically loss rates published by the FDIC. Qualitative factors include consideration of the following: changes in lending policies andprocedures; changes in economic conditions, changes in the nature and volume of the portfolio; changes in the experience, ability and depth of lendingmanagement and other relevant staff; changes in the volume and severity of past due, nonaccrual and other adversely graded loans; changes in the loanreview system; changes in the value of the underlying collateral for collateral-dependent loans; concentrations of credit and the effect of other externalfactors 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, loans secured by vacant land and construction loans, commercial and72 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 industrial loans and consumer loans. Relevant risk characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratiosand 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. Transfers of Financial Assets Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets isdeemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it fromtaking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assetsthrough an agreement to repurchase them before their maturity.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, as are the net operating results from these assets.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, 2018 or 2017.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, 2018 and 2017, the Bankheld $20.3 million and $19.1 million of FHLB stock, respectively. The Company does not believe that this stock is currently impaired and no adjustments toits carrying value have been recorded.Mortgage Servicing Rights When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recordedin gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. All classes ofservicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income inproportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is recognizedthrough a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines thatall or a portion of the impairment no longer exists for a particular grouping,73 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 a reduction of the allowance may be recorded as an increase to income. As of December 31, 2018 and 2017, no impairment has been recorded. Servicing fee income, which is reported on the income statement as other income, is recorded for fees earned for servicing loans. The fees are basedon a contractual percentage of the outstanding principal. The amortization of mortgage servicing rights is netted against loan servicing fee income. GoodwillGoodwill is recorded upon completion of a business combination as the difference between the purchase price and the fair value of net identifiableassets acquired. Subsequent to initial recognition, the Company will test goodwill for impairment on an annual basis by comparing the fair value of thereporting unit to its carrying amount. The goodwill recorded by the Company was recognized from the acquisition of Pacific Rim Bank in June in 2015, theacquisition of Community 1st Bancorp and its wholly owned subsidiary, Community 1st Bank in November of 2017, and the acquisition of PBB Bancorpand its wholly-owned subsidiary, Pacific Business Bank in June of 2018, and was not considered impaired at December 31, 2018.Other Intangible AssetsIntangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Other intangible assetsconsist of core deposit intangible assets arising from whole bank acquisitions and are amortized on an accelerated method over their estimated useful lives,which range from 7 to 10 years. At December 31, 2018 and 2017, core deposit intangible assets totaled $11 million and $6.3 million, respectively, and werecognized $2.0 million, $0.4 million and $0.2 million in core deposit intangible amortization expense in 2018, 2017 and 2016, respectively.Revenue RecognitionOn January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which requires an entity torecognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This update replaces mostexisting revenue recognition guidance in GAAP. Adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financialstatements and related disclosures, as the Company’s primary sources of revenues are generated from financial instruments, such as loans and investmentsecurities that are not within the scope of ASU 2014-09. Descriptions of our primary revenue-generating activities that are presented in our incomestatements are as follows:Interest on LoansInterest income is accrued daily on the Company’s outstanding loan balances. Loans on which the accrual of interest has been discontinued aredesignated as nonaccrual loans. Accrual of interest on loans is discontinued when reasonable doubt exists as to the full, timely collection of interest orprincipal and, generally, when a loan becomes contractually past due for ninety days or more with respect to principal or interest. The accrual of interest maybe 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 collectionor 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. Interest onsuch loans is then recognized only to the extent that cash is received and where the future collection of principal is probable. Accrual of interest is resumedon loans only when, in the judgment of management, the loan is estimated to be fully collectible. The Bank continues to accrue interest on restructured loanssince full payment of principal and interest is expected and such loans are performing or are less than ninety days delinquent and, therefore, do not meet thecriteria for nonaccrual status. Restructured loans that have been placed on nonaccrual status are returned to accrual status when the remaining loan balance,net of any charge-offs related to the restructure, is estimated to be fully collectible by management and performing in accordance with the applicable loanterms. 74 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 Wealth management and trust fee income Asset management fees are billed on a monthly or quarterly basis based on the amount of assets under management and the applicable contractualfee percentage. Asset management fees are recognized as revenue in the period in which they are billed and earned. Financial planning fees are due and billedat the completion of the planning project and are recognized as revenue at that time.Service charges on deposit accountsService charges on deposit accounts represent general service fees for monthly account maintenance and activity or transaction-basedfees. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when atransaction has been completed. Payment for such performance obligations are generally received at the time the performance obligations are satisfied.Gains and Losses on Sales of REOThe new guidance requires judgment in evaluating if: (a) a commitment on the buyer’s part exists, (b) collection is probable in circumstanceswhere the initial investment is minimal and (c) the buyer has obtained control of the asset, including the significant risks and rewards of the ownership. Ifthere is no commitment on the buyer’s part, collection is not probable or the buyer has not obtained control of the asset, then a gain cannot berecognized. The initial investment requirement for the buyer along with the various methods for profit recognition are no longer applicable. Other non-interest income includes revenue related to mortgage servicing activities and gains on sales of loans, which are not subject to therequirements of ASU 2014-09.Stock-Based CompensationThe Company recognizes the cost of employee services received in exchange for awards of stock options, or other equity instruments, based on thegrant-date fair value of those awards. This cost is recognized over the period in which an employee is required to provide services in exchange for the award,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’s commonstock 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 more likelythan not to be sustained on audit by the taxing authorities. Interest and penalties related to uncertain tax positions are recorded as part of income tax expense.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. 75 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 Stock SplitOn January 18, 2017, the Company completed a two-for-one stock split in the form of a stock dividend. Each stockholder of record at the close ofbusiness of January 4, 2017 received one additional share of common stock for every share held. All share and per share amounts included in the financialstatements have been adjusted to reflect the effect of this stock split.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, which 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.Derivatives and Hedging Activities Derivative instruments and hedging activities are accounted for in accordance with FASB ASC Topic 815, “Derivatives and Hedging.” The fairvalue of derivative instruments are recognized as either assets or liabilities on the consolidated balance sheet. All derivatives are evaluated at inception as towhether or not they are hedging or non-hedging activities. For derivative instruments designated as non-hedging activities, the change in fair value isrecognized currently in earnings. For derivative instruments designated as hedging activities, a qualitative analysis is performed at inception to determine if the derivativeinstrument is highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk during the period that the hedge isdesignated. Subsequently, a qualitative assessment of a hedge’s effectiveness is performed on a quarterly basis. For a fair value hedge, the change in fair valueon the hedging instrument is recognized currently in earnings and the change in fair value on the hedged item attributable to the hedged risk adjusts thecarrying amount of the hedged item and is recognized currently in earnings. All amounts recognized in earnings are presented in the same income statementline item as the earnings effect of the hedged item.New Accounting PronouncementsIn November 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-19, Codification Improvements to Topic 326, FinancialInstruments – Credit Losses. ASU 2018-19 provides improvements to clarify the guidance in the amendments in ASU 2016-13, Financial Instruments –Credit Losses (Topic 326), or to correct unintended application of guidance. We expect the adoption of ASU 2018-19 will impact the Company’s accountingfor credit losses in the same manner as the guidance in ASU 2016-13 described below.In August 2018, the FASB issued guidance within ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair ValueMeasurement. The amendments within ASU 2018-13 remove, modify, and supplement the disclosure requirements for fair value measurements. Disclosurerequirements that were removed include: the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing oftransfers between levels, and the valuation processes for Level 3 fair value measurements. The amendments clarify that the measurement uncertaintydisclosure is to communicate information about the uncertainty in measurement as of the reporting date. Additional disclosure requirements include: thechanges in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the endof the reporting period, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. With theexception of the above additional disclosure requirements, which will be applied prospectively, all other amendments should be applied retrospectively toall periods presented upon their effective date. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years,beginning after December 15, 2019. Early adoption is76 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 permitted. The adoption of ASU 2018-13 is not expected to have a significant impact on the Company's consolidated financial statements.In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842), TargetedImprovements. ASU 2018-10 provides improvements to clarify ASU 2016-02, Leases (Topic 842), or to correct unintended application of guidance. ASU2018-11 provides amendments to a new and optional transition method to adopt the new lease requirements in ASU 2016-02. We expect the adoption of ASU2018-10 and ASU 2018-11 will impact the Company’s accounting for its building leases at each of its locations through an increase in assets and liabilitiesin the same manner as the guidance in ASU 2016-02 described below.In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for HedgingActivities”. The amendments in this ASU were issued to better align an entity’s risk management activities and financial reporting for hedging relationshipsthrough changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. As a result,the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of theeffects of the hedging instrument and the hedged item in the financial statements. Current GAAP contains limitations on how an entity can designate thehedged risk in certain cash flow and fair value hedging relationships. To address those current limitations, the amendments in this ASU permit hedgeaccounting for risk components in hedging relationships involving nonfinancial risk and interest rate risk. In addition, the amendments in this ASU changethe guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges ofinterest rate risk. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.The ASU will become effective on January 1, 2019. Adoption of ASU 2017-12 is not expected to have a material impact on the Company’s consolidatedfinancial statements.In February 2017, the FASB issued ASU 2017-05 “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20):Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” which clarifies that the guidance inAccounting Standards Codification (“ASC”) 610-20 on accounting for derecognition of a nonfinancial asset and in-substance nonfinancial asset applies onlywhen the asset (or asset group) does not meet the definition of a business and provides guidance for partial sales of nonfinancial assets. The guidance iseffective for annual reporting periods beginning after December 15, 2017, and interim periods within that period. The ASU became effective on January 1,2018. Adoption of ASU 2017-05 did not have a material impact on the Company’s consolidated financial statements.In January 2017, the FASB issued ASU 2017-04 “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”which provides updated guidance on how an entity is required to test goodwill for impairment. This update is effective for the Company for annual periodsbeginning after December 15, 2019, and interim periods within those annual periods. The adoption of ASU 2017-04 is not expected to have a material impacton the Company’s consolidated financial statements.In January 2017, the FASB issued ASU 2017-01 “Business Combinations (Topic 805): Clarifying the Definition of a Business” which providesguidance in clarifying the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should beaccounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for annual reporting periods beginning after December 15, 2017,and interim periods within the period. The adoption of ASU 2017-01 did not have a material impact on the Company’s consolidated financial statements.In August 2016, the FASB issued ASU 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”which provides guidance for eight specific cash flow issues. FASB issued the standard to clarify areas where GAAP has been either unclear or lacking inspecific guidance. This update is effective for the Company for annual periods beginning after December 15, 2017, and interim periods within those annualperiods. The adoption of ASU 2016-15 did not have a material impact on the Company’s Consolidated Financial Statements.In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on FinancialInstruments” which introduces new guidance for the accounting for credit losses on certain types of financial instruments. It also modifies the impairmentmodel for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since theirorigination. The new model, referred to as the current expected credit losses (CECL) model, will apply to financial assets subject to credit losses andmeasured at amortized cost, and certain off-balance sheet credit exposures. Upon initial recognition of the exposure, the CECL model requires an entity toestimate the credit losses expected over the life of an exposure. This update is effective for the Company for annual periods beginning after December 15,77 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 2019, and interim periods within those annual periods. The Company has begun analyzing the data requirements needed to implement the adoption of ASU2016-13 and we expect that the adoption of ASU 2016-13 may have a significant impact on the Company’s recording of its allowance for loan losses. Thefinancial statement impact of the implementation of ASU 2016-13 is undeterminable at this time.On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The most significant change for lessees is the requirement under the newguidance to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases, which is generally defined as a lease term of lessthan 12 months. This change will result in lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operatingleases under current lease accounting guidance. The amendments in this Update are effective for interim and annual periods beginning after December 15,2018. As a result of the adoption of ASU 2016-02, the Company expects to record a right to use asset of $21 million and a corresponding lease liability of$23 million in the first quarter of 2019. The adoption of ASU 2016-02 is not expected to impact the Company’s results of operations. On January 5, 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets andFinancial Liabilities (Subtopic 825-10). Changes made to the current measurement model primarily affect the accounting for equity securities with readilydeterminable fair values, where changes in fair value will impact earnings instead of other comprehensive income. The accounting for other financialinstruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. The Update also changes the presentation anddisclosure requirements for financial instruments including a requirement that public business entities use exit price when measuring the fair value offinancial instruments measured at amortized cost for disclosure purposes. This Update is generally effective for public business entities in fiscal yearsbeginning after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU 2016-16 did not have a material impact on theCompany’s Consolidated Financial Statements. NOTE 2: ACQUISITIONS On June 1, 2018, the Company completed the acquisition of PBB Bancorp and its wholly owned subsidiary Premier Business Bank (collectively“PBB”), through a merger of PBB with and into the Bank, in exchange for 5,234,593 shares of its common stock with a fair value of $19.39 per share. Theprimary reason for acquiring PBB was to expand our operations in Southern California. On November 10, 2017, the Company completed the acquisition of Community 1st Bancorp and its wholly owned subsidiary, Community 1st Bank(collectively “C1B”), through a merger of C1B with and into the Bank, in exchange for 2,955,623 shares of common stock of FFI with a fair value of $17.55per share. The primary reason for acquiring C1B was to expand our operations in Northern California.The acquisitions were accounted for under the purchase method of accounting. The acquired assets, assumed liabilities and identifiable intangibleassets are recorded at their respective acquisition date fair values. 78 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 The following table represents the assets acquired and liabilities assumed of PBB as of June 1, 2018 and the fair value adjustments and amountsrecorded by the Bank in 2018 under the acquisition method of accounting: PBB BookValue Fair ValueAdjustments Fair Value(dollars in thousands) Assets Acquired: Cash and cash equivalents$47,582 $— $47,582 Securities AFS 10,072 (90) 9,982 Loans, net of deferred fees 537,885 (14,986) 522,899 Allowance for loan losses (3,011) 3,011 — Premises and equipment, net 3,811 (1,536) 2,275 Investment in FHLB stock 3,229 — 3,229 Deferred taxes 1,451 2,398 3,849 REO 934 (109) 825 Goodwill and core deposit intangible 634 66,615 67,249 Other assets 6,634 (566) 6,068 Total assets acquired$609,221 $54,737 $663,958 Liabilities Assumed: Deposits$477,366 $219 $477,585 Borrowings 79,911 (341) 79,570 Accounts payable and other liabilities 5,204 100 5,304 Total liabilities assumed 562,481 (22) 562,459 Excess of assets acquired over liabilities assumed 46,740 54,759 101,499 Total$609,221 $54,737 $663,958 Consideration: Stock issued $101,499 Goodwill of $61 million, which is not tax deductible, is included in intangible assets in the table above.In many cases, the fair values of assets acquired and liabilities assumed were determined by estimating the cash flows expected to result from thoseassets and liabilities and discounting them at appropriate market rates. The most significant category of assets for which this procedure was used was that ofacquired loans. The excess of expected cash flows above the fair value (Level 3 inputs) of the majority of loans will be accreted to interest income over theremaining lives of the loans in accordance with FASB Accounting Standards Codification (“ASC”) 310-20.Certain loans, for which specific credit-related deterioration since origination was identified, are recorded at fair value reflecting the present valueof 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.For loans acquired from PBB, the contractual amounts due, expected cash flows to be collected and fair value as of the acquisition date were asfollows: (dollars in thousands) PurchasedCredit Impaired All Other AcquiredLoans Contractual amounts due $33,791 $697,512 Cash flows not expected to be collected 14,443 7,084 Expected cash flows 19,348 690,428 Interest component of expected cash flows 1,887 184,990 Fair value of acquired loans $17,461 $505,438 79 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 In accordance with generally accepted accounting principles there was no carryover of the allowance for loan losses that had been previouslyrecorded by PBB.The Company recorded a deferred income tax asset of $3.8 million related to PBB’s operating loss carry-forward and other tax attributes of PBB,along with the effects of fair value adjustments resulting from applying the purchase method of accounting.The fair value of savings and transaction deposit accounts acquired from PBB were assumed to approximate their carrying value as these accountshave no stated maturity and are payable on demand. Certificates of deposit accounts were valued by comparing the contractual cost of the portfolio to anidentical portfolio bearing current market rates (Level 2 inputs). The portfolio was segregated into pools based on remaining maturity. For each pool, theprojected cash flows from maturing certificates were then calculated based on contractual rates and prevailing market rates. The valuation adjustment for eachpool is equal to the present value of the difference of these two cash flows, discounted at the assumed market rate for a certificate with a correspondingmaturity. This valuation adjustment will be accreted to reduce interest expense over the remaining maturities of the respective pools. The Company alsorecorded a core deposit intangible, which represents the value of the deposit relationships acquired from PBB, of $6.7 million. The core deposit intangiblewill be amortized over a period of 7 years.Pro Forma Information (unaudited)The following table presents unaudited pro forma information as if the (i) acquisition of PBB had occurred on January 1, 2018, January 1, 2017 andJanuary 1, 2016, for 2018, 2017 and 2016, respectively, after giving effect to certain adjustments, and (ii) the acquisition of C1B had occurred on January 1,2017 and January 1, 2016, for 2017 and 2016, after giving effect to certain adjustments. The unaudited pro forma information for these periods includesadjustments for interest income on loans acquired, amortization of intangibles arising from the transaction, adjustments for interest expense on depositsacquired, and the related income tax effects of all these items and the income tax costs or benefits derived from the income or loss before taxes of PBB andC1B. The net effect of these pro forma adjustments were increases of $9.6 million, $3.0 million and $1.4 million in net income for 2018, 2017 and 2016,respectively. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had thetransaction been effected on the assumed dates. 2018 2017 2016(dollars in thousands) Net interest income $167,099 $149,650 $120,734 Provision for loan losses 4,220 3,472 5,216 Noninterest income 36,538 41,420 38,693 Noninterest expenses 130,702 124,838 103,478 Income before taxes 68,715 62,760 50,733 Taxes on income 19,412 28,284 19,138 Net income $49,303 $34,476 $31,594 Net income per share: Basic $1.11 $0.82 $0.78 Diluted $1.10 $0.80 $0.76 The revenues (net interest income and noninterest income) and net income for the period from June 1, 2018 to December 31, 2018 related to theoperations acquired from PBB and included in our results of operations for 2018 were approximately $17.2 million and $6.5 million, respectively. Therevenues (net interest income and noninterest income) and income before taxes for the period from November 10, 2017 to December 31, 2017 related to theoperations acquired from C1B and included in the results of operations for 2017 was approximately $1.4 million and $0.9 million, respectively. NOTE 3: FAIR VALUEAssets Measured at Fair Value on a Recurring BasisFair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageousmarket for the asset or liability in an orderly transaction between market participants on the measurement date. Current accounting guidance establishes afair value hierarchy, which requires an entity to maximize the use of observable80 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair values: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurementdate. Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in marketsthat are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect the Company's own assumptions about the assumptions that market participants would use inpricing an asset or liability. Securities available for sale and effective with the adoption of ASU 2016-01 on January 1, 2018, investments in equity securities and interest rateswaps, are measured at fair value on a recurring basis depending upon whether the inputs are Level 1, 2 or 3 as described above.The following tables show the recorded amounts of assets and liabilities measured at fair value on a recurring basis as of: Fair Value Measurement Level Total Level 1 Level 2 Level 3 (dollars in thousands) December 31, 2018: Investment securities available for sale Agency mortgage-backed securities $721,669 — 356,441 365,228 Corporate bonds 54,344 — 54,344 — Beneficial interest – FHLMC securitizations 32,086 — — 32,086 Other 1,470 1,470 — — Investment in equity securities 352 352 — — Total assets at fair value on a recurring basis $809,921 $1,822 $410,785 $397,314 Derivatives: Interest rate swaps 5,175 — 5,175 — December 31, 2017: Investment securities available for sale Agency mortgage-backed securities $464,019 — 464,019 — Corporate bonds 19,000 — 19,000 — Beneficial interest – FHLMC securitizations 35,852 — — 35,852 Other 493 493 — — Investment in equity securities 158 158 — — Total assets at fair value on a recurring basis $519,522 $651 $483,019 $35,852 The decrease in level 3 assets from December 31, 2017 was due to Beneficial interest – FHLMC securitization paydowns. Assets Measured at Fair Value on a Nonrecurring BasisFrom time to time, we may be required to measure at fair value other assets on a nonrecurring basis. These nonrecurring fair value adjustmentstypically involve application of lower of cost or market accounting or write-downs of individual assets.Impaired Loans. ASC 820-10 applies to loans measured for impairment in accordance with ASC 310-10, “Accounting by Creditors for Impairmentof a Loan”, at the fair value of the loan’s collateral (if the loan is collateral dependent) less estimated selling costs. When the fair value of the collateral isbased on an observable market price or a current appraised value, we measure the impaired loan at nonrecurring Level 2. When an appraised value is notavailable, or management determines the fair value of the81 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 collateral is further impaired below the appraised value and there is no observable market price or a discounted cash flow has been used to determine the fairvalue, we measure the impaired loan at nonrecurring Level 3. The total collateral dependent impaired Level 3 loans were $12.8 million and $13.4 million atDecember 31, 2018 and December 31, 2017, respectively. There were no specific reserves related to these loans at December 31, 2018 and December 31,2017.Real Estate Owned. The fair value of real estate owned is based on external appraised values that include adjustments for estimated selling costsand assumptions of market conditions that are not directly observable, resulting in a Level 3 classification. As of December 31, 2018 and 2017, the fair valueof real estate owned was $0.8 million and $2.9 million, respectively.Mortgage Servicing Rights. When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with theincome statement effect recorded in gains on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future netservicing income, resulting in a Level 3 classification. All classes of servicing assets are subsequently measured using the amortization method whichrequires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of theunderlying loans.Fair Value of Financial InstrumentsFASB ASC 825, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value information about financialinstruments, whether or not recognized in the balance sheet, for which it is practicable to estimate such value. The methodologies for estimating the fair valueof financial assets and financial liabilities measured at fair value on a recurring and non-recurring basis are discussed above. The estimated fair value amountshave been determined by management using available market information and appropriate valuation methodologies, are based on the exit price notion setforth by ASU 2016-1. In cases where quoted market prices are not available, fair values are based on estimates using present value or other market valuetechniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard,the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediatesettlement of the instrument. The aggregate fair value amounts presented below do not represent the underlying value of the Company.Fair value estimates are made at a discrete point in time based on relevant market information and other information about the financialinstruments. Because no active market exists for a significant portion of our financial instruments, fair value estimates are based in large part on judgments wemake primarily regarding current economic conditions, risk characteristics of various financial instruments, prepayment rates, and future expected lossexperience. These estimates are subjective in nature and invariably involve some inherent uncertainties. Additionally, unexpected changes in events orcircumstances can occur that could require us to make changes to our assumptions and which, in turn, could significantly affect and require us to makechanges to our previous estimates of fair value.In addition, the fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the valueof existing and anticipated future customer relationships and the value of assets and liabilities that are not considered financial instruments, such as premisesand equipment and other real estate owned.The following methods and assumptions were used to estimate the fair value of financial instruments.Cash and Cash Equivalents. The fair value of cash and cash equivalents approximates its carrying value.Interest-Bearing Deposits with Financial Institutions. The fair values of interest-bearing deposits maturing within ninety days approximate theircarrying values.82 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 Investment Securities Available for Sale. Investment securities available-for-sale are measured at fair value on a recurring basis. Fair valuemeasurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or othermodel-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and otherfactors such as credit loss assumptions. When a market is illiquid or there is a lack of transparency around the inputs to valuation, the securities are classifiedas Level 3 and reliance is placed upon internally developed models, and management judgment and evaluation for valuation. Level 1 securities includethose traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bondsand corporate debt securities. Securities classified as level 3 include beneficial interests – FHLMC securitization. Significant assumptions in the valuation ofthese Level 3 securities as of December 31, 2018 included a prepayment rate of 15% and discount rates ranging from 4.0% to 10%.Federal Home Loan Bank Stock. The Bank is a member of the Federal Home Loan Bank (the “FHLB”). As a member, we are required to own stockof the FHLB, the amount of which is based primarily on the level of our borrowings from this institution. The fair value of the stock is equal to the carryingamount, is classified as restricted securities and is periodically evaluated for impairment based on our assessment of the ultimate recoverability of ourinvestments in that stock. Any cash or stock dividends paid to us on such stock are reported as income.Loans held for sale. The fair value of loans held for sale is determined using secondary market pricing.Loans, other than impaired loans. The fair value for loans with variable interest rates is the carrying amount. The fair value of fixed rate loans isderived by calculating the discounted value of future cash flows expected to be received by the various homogeneous categories of loans. All loans havebeen adjusted to reflect changes in credit risk.Deposits. The fair value of demand deposits, savings deposits, and money market deposits is defined as the amounts payable on demand. The fairvalue of fixed maturity certificates of deposit is estimated based on the discounted value of the future cash flows expected to be paid on the deposits.Borrowings. The fair value of borrowings is the carrying value of overnight FHLB advances that approximate fair value because of the short-termmaturity of this instrument, resulting in a Level 2 classification. The fair value of term borrowings is derived by calculating the discounted value of futurecash flows expected to be paid out by the Company. Interest rate swaps. Interest rate swaps are reported at an estimated fair value utilizing Level 2 inputs including LIBOR rates from overnight to oneyear and U.S. swap rates from one year to thirty years. 83 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 The following table sets forth the estimated fair values and related carrying amounts of our financial instruments as of: Carrying Fair Value Measurement Level (dollars in thousands) Value 1 2 3 Total December 31, 2018: Assets: Cash and cash equivalents $67,312 $67,312 $— $— $67,312 Securities AFS 809,569 1,470 410,785 397,314 809,569 Loans held for sale 507,643 — 517,273 — 517,273 Loans, net 4,274,669 — — 4,408,788 4,408,788 Investment in FHLB stock 20,307 — 20,307 — 20,307 Investment in equity securities 352 352 — — 352 Liabilities: Deposits 4,532,968 2,582,758 1,943,635 — 4,526,393 Borrowings 708,000 — 703,000 5,000 708,000 Interest rate swaps 5,175 — 5,175 — 5,175 December 31, 2017: Assets: Cash and cash equivalents $120,394 $120,394 $— $— $120,394 Securities AFS 519,364 493 483,019 35,852 519,364 Loans held for sale 154,380 — 155,345 — 154,345 Loans, net 3,645,327 — — 3,617,060 3,617,060 Investment in FHLB stock 19,060 — 19,060 — 19,060 Investment in equity securities 158 158 — — 158 Liabilities: Deposits Borrowings 3,443,527 2,542,730 901,877 — 3,444,607 678,000 — 628,000 50,000 678,000 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 2018: Agency mortgage-backed securities $723,597 $11,883 $(13,811) $721,669 Corporate bonds 54,000 638 (294) 54,344 Beneficial interests in FHLMC securitization 32,143 1,756 (1,813) 32,086 Other 1,458 15 (3) 1,470 Total $811,198 $14,292 $(15,921) $809,569 2017: Agency mortgage-backed securities $471,131 $287 $(7,399) $464,019 Corporate bonds 19,000 — — 19,000 Beneficial interests in FHLMC securitization 35,930 1,811 (1,889) 35,852 Other 499 — (6) 493 Total $526,560 $2,098 $(9,294) $519,364 US Treasury securities of $0.5 million as of December 31, 2018 that are included in the table above as Other are pledged as collateral to the State ofCalifornia to meet regulatory requirements related to the Bank’s trust operations. As of December 31, 2018,84 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 $79 million of agency mortgage-backed securities are pledged as collateral as support for the Banks’s obligations under a loan sales and securitizationagreement entered into in 2018.The table below indicates, as of December 31, 2018, the gross unrealized losses and fair values of our investments, aggregated by investmentcategory and length of time that the individual securities have been in a continuous unrealized loss position. Securities with Unrealized Loss at December 31, 2018 (dollars in thousands) Less than 12 months 12 months or more Total FairValue UnrealizedLoss FairValue UnrealizedLoss FairValue UnrealizedLoss Agency mortgage-backed securities $— $— $387,151 $(13,811) $387,151 $(13,811)Corporate bonds 38,706 (294) — — 38,706 (294)Beneficial interests in FHLMC securitization 429 (11) 7,038 (1,802) 7,467 (1,813)Other — — 497 (3) 497 (3)Total temporarily impaired securities $39,135 $(305) $394,686 $(15,616) $433,821 $(15,921) Securities with Unrealized Loss at December 31, 2017 (dollars in thousands) Less than 12 months 12 months or more Total FairValue UnrealizedLoss FairValue UnrealizedLoss FairValue UnrealizedLoss Agency mortgage backed securities 158,984 (1,394) 259,213 (6,005) 418,197 (7,399)Beneficial interests in FHLMC securitization — — 8,738 (1,889) 8,738 (1,889)Other 197 $(2) $296 $(4) $493 $(6)Total temporarily impaired securities $159,181 $(1,396) $268,247 $(7,898) $427,428 $(9,294) Unrealized losses in agency mortgage backed securities, beneficial interests in FHLMC securitizations, and other securities have not been recognizedinto income because the issuer bonds are of high credit quality, management does not intend to sell, it is not more likely than not that management would berequired to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in discount rates and assumptionsregarding future interest rates. The fair value is expected to recover as the bonds approach maturity.The scheduled maturities of securities AFS, other than agency mortgage backed securities, and the related weighted average yield is as follows as ofDecember 31: (dollars in thousands) Less than 1 Year 1 Through 5 years 5 Through 10 Years After10 Years Total 2018 Amortized Cost: Corporate bonds $— $— $54,000 $— $54,000 Other 500 — 958 — 1,458 Total 500 — 54,958 — 55,458 Weighted average yield 1.03% —% 5.29% —% 5.25%Estimated Fair Value: Corporate bonds $— $— $54,344 $— $54,344 Other 497 — 973 — 1,470 Total $497 $— $55,317 $— $55,814 85 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 (dollars in thousands) Less than 1 Year 1 Through 5 years 5 Through 10 Years After10 Years Total 2017 Amortized Cost: Corporate bonds $— $— $19,000 $— $19,000 Other — 499 — — 499 Total — 499 19,000 — 19,499 Weighted average yield —% 1.03% 5.24% —% 5.13%Estimated Fair Value: Corporate bonds $— $— $19,000 $— $19,000 Other — 493 — — 493 Total $— $493 $19,000 $— $19,493 Agency mortgage backed securities and beneficial interests in FHLMC securitizations are excluded from the above table because such securitiesare not due at a single maturity date. The weighted average yield of the agency mortgage backed securities and beneficial interests in FHLMC securitizationsas of December 31, 2018 and 2017 was 2.91% and 2.55%, respectively. NOTE 5: LOANSThe following is a summary of our loans as of December 31: (dollars in thousands) 2018 2017 Recorded investment balance: Loans secured by real estate: Residential properties: Multifamily $1,956,935 $1,935,429 Single family 904,828 645,816 Total real estate loans secured by residential properties 2,861,763 2,581,245 Commercial properties 869,169 696,748 Land 80,187 37,160 Total real estate loans 3,811,119 3,315,153 Commercial and industrial loans 449,805 310,779 Consumer loans 22,699 29,330 Total loans 4,283,623 3,655,262 Deferred expenses, net 10,046 8,465 Total $4,293,669 $3,663,727 As of December 31, 2018 and 2017, the principal balances shown above are net of unaccreted discount related to loans acquired in acquisitions of$13.3 million and $4.0 million, respectively.86 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 In 2018 and 2017 the Company purchased loans, for which there was, at acquisition, evidence of deterioration in credit quality since originationand it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of these purchased credit impairedloans is as follows at December 31: (dollars in thousands) 2018 2017 Outstanding principal balance: Loans secured by real estate: Residential properties $451 $— Commercial properties 10,871 1,525 Land 1,089 1,096 Total real estate loans 12,411 2,621 Commercial and industrial loans 1,150 2,774 Consumer loans 10 — Total loans 13,571 5,395 Unaccreted discount on purchased credit impaired loans (6,490) (1,638)Total $7,081 $3,757 Accretable yield, or income expected to be collected on purchased credit impaired loans, is as follows at December 31: (dollars in thousands) 2018 2017 Beginning balance $850 $289 Accretion of income (1,509) (108)Reclassifications from nonaccretable difference — 66 Acquisitions 1,887 603 Disposals (461) — Ending balance $767 $850 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 2018: Real estate loans: Residential properties $74 $— $499 $651 $1,224 $2,860,539 $2,861,763 Commercial properties 440 117 — 1,607 2,164 867,005 869,169 Land 2,000 — — 697 2,697 77,490 80,187 Commercial and industrial loans 12,541 300 536 8,559 21,936 427,869 449,805 Consumer loans — 7 — 2 9 22,690 22,699 Total $15,055 $424 $1,035 $11,516 $28,030 $4,255,593 $4,283,623 Percentage of total loans 0.35% 0.01% 0.02% 0.27% 0.65% 2017: Real estate loans: Residential properties $78 $— $— $— $78 $2,581,167 $2,581,245 Commercial properties — — 1,320 1,742 3,062 693,686 696,748 Land — — — — — 37,160 37,160 Commercial and industrial loans — — 789 9,617 10,406 300,373 310,779 Consumer loans — — — — — 29,330 29,330 Total $78 $— $2,109 $11,359 $13,546 $3,641,716 $3,655,262 Percentage of total loans 0.00% —% 0.06% 0.31% 0.37% 87 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 The following table presents the composition of TDRs by accrual and nonaccrual status as of: December 31, 2018 December 31, 2017 (dollars in thousands) Accrual Nonaccrual Total Accrual Nonaccrual Total Commercial real estate loans $1,264 $1,491 $2,755 $— $1,598 $1,598 Commercial and industrial loans — 2,096 2,096 195 2,698 2,893 Total 1,264 3,587 4,851 195 4,296 4,491 The following tables provide information on loans that were modified as TDRs during the years ended December 31, 2018 and 2017: Outstanding Recorded Investment (dollars in thousands) Number ofloans Pre-Modification Post-Modification Financial ImpactYear ended December 31, 2018 Commercial real estate loans 1 $1,264 $1,264 $— Commercial loans 3 2,096 2,096 — Total 4 $3,360 $3,360 $— Year ended December 31, 2017 Commercial real estate loans 1 $1,598 $1,598 $— Commercial loans 1 218 218 — Total 2 $1,816 $1,816 $— All of these loans were classified as a TDR as a result of a reduction in required principal payments and / or an extension of the maturity date of theloans. These loans have been paying in accordance with the terms of their restructure. 88 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 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 2018: Real estate loans: Residential properties $9,715 $(499) $— $— $9,216 Commercial properties 4,399 359 (211) — 4,547 Land and construction 395 (4) — — 391 Commercial and industrial loans 3,624 4,413 (3,978) 569 4,628 Consumer loans 267 (49) — — 218 Total $18,400 $4,220 $(4,189) $569 $19,000 2017: Real estate loans: Residential properties $6,669 $3,046 $— $— $9,715 Commercial properties 2,983 1,416 — — 4,399 Land and construction 233 162 — — 395 Commercial and industrial loans 5,227 (1,841) — 238 3,624 Consumer loans 288 (21) — — 267 Total $15,400 $2,762 $— $238 $18,400 2016: Real estate loans: Residential properties $6,799 $(130) $— $— $6,669 Commercial properties 1,813 1,051 (50) 169 2,983 Land and construction 103 130 — — 233 Commercial and industrial loans 1,649 3,578 — — 5,227 Consumer loans 236 52 — — 288 Total $10,600 $4,681 $(50) $169 $15,400 89 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 The following table presents the balance in the allowance for loan losses and the recorded investment in loans by impairment method as ofDecember 31: Allowance for Loan Losses UnaccretedCreditComponentOther Loans Evaluated for Impairment PurchasedImpaired Total (dollars in thousands) Individually Collectively 2018: Allowance for loan losses: Real estate loans: Residential properties $— $9,216 $— $9,216 $1,724 Commercial properties 126 4,421 — 4,547 1,779 Land — 391 — 391 84 Commercial and industrial loans 290 4,338 — 4,628 633 Consumer loans — 218 — 218 3 Total $416 $18,584 $— $19,000 $4,223 Loans: Real estate loans: Residential properties $651 $2,861,112 $— $2,861,763 $241,698 Commercial properties 2,871 860,835 5,463 869,169 275,516 Land 697 78,681 809 80,187 41,132 Commercial and industrial loans 8,559 440,437 809 449,805 61,183 Consumer loans — 22,699 — 22,699 366 Total $12,778 $4,263,764 $7,081 $4,283,623 $619,895 2017: Allowance for loan losses: Real estate loans: Residential properties $— $9,715 $— $9,715 $248 Commercial properties — 4,399 — 4,399 1,449 Land — 395 — 395 4 Commercial and industrial loans 909 2,715 — 3,624 1,204 Consumer loans — 267 — 267 100 Total $909 $17,491 $— $18,400 $3,005 Loans: Real estate loans: Residential properties $— $2,581,245 $— $2,581,245 $26,605 Commercial properties 4,037 691,632 1,079 696,748 168,057 Land — (837) 837 37,160 167 Commercial and industrial loans 9,399 299,539 1,841 310,779 62,849 Consumer loans — 29,330 — 29,330 2,899 Total $13,436 $3,600,909 $3,757 $3,655,262 $260,577 The column labeled “Unaccreted Credit Component Other Loans” represents the amount of unaccreted credit component discount for the otherloans acquired in a business combination, and the stated principal balance of the related loans. The discount is equal to 0.68% and 1.15% of the statedprincipal balance of these loans as of December 31, 2018 and 2017, respectively. In addition to this unaccreted credit component discount, an additional$0.4 million and $0.2 million of the ALLL was provided for these loans as of December 31, 2018 and 2017, respectively.90 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 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 2018: Real estate loans: Residential properties $2,857,666 $3,446 $— $651 $2,861,763 Commercial properties 845,672 13,024 7,602 2,871 869,169 Land 78,681 — 809 697 80,187 Commercial and industrial loans 431,751 7,723 1,772 8,559 449,805 Consumer loans 22,699 — — — 22,699 Total $4,236,469 $24,193 $10,183 $12,778 $4,283,623 2017: Real estate loans: Residential properties $2,578,773 $192 $2,280 $— $2,581,245 Commercial properties 680,449 6,326 5,936 4,037 696,748 Land 36,321 — 839 — 37,160 Commercial and industrial loans 298,408 865 2,107 9,399 310,779 Consumer loans 29,330 — — — 29,330 Total $3,623,281 $7,383 $11,162 $13,436 $3,655,262 91 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 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 2018: Real estate loans: Residential properties $651 $651 $— $— $— Commercial properties 1,607 1,607 1,264 1,264 126 Land 697 697 — — — Commercial and industrial loans 6,543 6,543 2,016 2,016 290 Total $9,498 $9,498 $3,280 $3,280 $416 2017: Real estate loans: Commercial properties $4,037 4,037 $— $— $— Commercial and industrial loans 250 250 9,149 9,149 909 Total $4,287 $4,287 $9,149 $9,149 $909 The weighted average annualized average balance of the recorded investment for impaired loans, beginning from when the loan became impaired,and any interest income recorded on impaired loans after they became impaired is as follows for the years ending December 31: 2018 2017 2016 (dollars in thousands) AverageRecordedInvestment InterestIncome after Impairment AverageRecordedInvestment InterestIncome after Impairment AverageRecordedInvestment InterestIncome after Impairment Real estate loans: Residential properties $276 $— $1,323 $20 $1,970 $14 Commercial properties 3,459 90 2,403 50 2,252 17 Commercial and industrial loans 9,117 — 5,503 5 1,673 20 Consumer loans — — — — 4 — Total $12,852 $90 $9,229 $75 $5,899 $51 There was no interest income recognized on a cash basis in 2018, 2017 or 2016 on impaired loans. NOTE 7: PREMISES AND EQUIPMENTA summary of premises and equipment is as follows at December 31: (dollars in thousands) 2018 2017 Leasehold improvements and artwork $7,268 $5,107 Information technology equipment 7,031 7,180 Furniture and fixtures 3,286 3,181 Land and auto 805 — Total 18,390 15,468 Accumulated depreciation and amortization (9,245) (8,887)Net $9,145 $6,581 92 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 NOTE 8: REAL ESTATE OWNEDThe activity in our portfolio of REO is as follows during the periods ending December 31: (dollars in thousands) 2018 2017 Beginning balance $2,920 $1,734 Loans transferred to REO (93) 1,520 REO acquired in merger 565 — Dispositions of REO (2,577) (334)Ending balance $815 $2,920 NOTE 9: LOAN SALES AND MORTGAGE SERVICING RIGHTS In 2018, FFB recognized $0.4 million of gains on the sale of $674 million of multifamily loans through a securitization sponsored by FreddieMac. In 2017, FFB sold $453 million of multifamily loans to financial institutions and recognized a gain of $7.0 million. In 2016, FFB sold $265 million ofmultifamily loans sold through a securitization sponsored by Freddie Mac and recognized a gain of $7.2 million. In 2016, FFB also sold $41 million ofmultifamily loans to financial institutions and recognized a gain of $0.6 million. For the sales of multifamily loans in 2018, 2017, and 2016, FFB retained servicing rights for the majority of these loans and recognized mortgageservicing rights as part of the transactions. As of December 31, 2018, and 2017, mortgage servicing rights were $6.4 million and $4.8 million, respectivelyand the amount of loans serviced for others totaled $1.3 billion and $745 million at December 31, 2018 and 2017, respectively. Servicing fees collected in2018, 2017, and 2016 were $ 1.1 million, $0.7 million, and $0.3 million, respectively. NOTE 10: DEPOSITSThe following table summarizes the outstanding balance of deposits and average rates paid thereon at December 31: 2018 2017 (dollars in thousands) Amount WeightedAverage Rate Amount WeightedAverage Rate Demand deposits: Noninterest-bearing $1,074,661 — $1,097,196 — Interest-bearing 317,380 0.798% 235,294 0.411%Money market and savings 1,190,717 1.115% 1,210,240 0.840%Certificates of deposits 1,950,210 2.142% 900,797 1.189%Total $4,532,968 1.270% $3,443,527 0.634%At December 31, 2018, of the $360 million of certificates of deposits of $250,000 or more, $332 million mature within one year and $28 millionmature after one year. Of the $1.6 billion of certificates of deposit of less than $250,000, $1.5 billion mature within one year and $53 million mature after oneyear. At December 31, 2017, of the $288 million of certificates of deposits of $250,000 or more, $230 million mature within one year and $58 million matureafter one year. Of the $613 million of certificates of deposit of less than $250,000, $543 million mature within one year and $70 million mature after oneyear. NOTE 11: BORROWINGSAt December 31, 2018, our borrowings consisted of $703 million of overnight FHLB advances at the Bank and $5 million of borrowings under acompany line of credit. At December 31, 2017, our borrowings consisted of $628 million of overnight FHLB advances and $50 million of borrowings under acompany line of credit. These FHLB advances were paid in full in the early part of January 2019 and 2018, respectively, and bore interest rates of 2.56% and1.41%, respectively. At December 31, 2018, the interest rate on the company line of credit was 5.90%. Because the Bank utilizes overnight borrowings, thebalance of outstanding borrowings fluctuates on a daily basis.93 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 FHLB advances are collateralized by loans secured by multifamily and commercial real estate properties with a carrying value of $3.0 billion as ofDecember 31, 2018. 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, 2018 was $2.2 billion. In addition to the $703 million borrowing, the Bank had in place $198 million of letters ofcredit from the FHLB which are used to meet collateral requirements for borrowings from the State of California and local agencies.During 2017, FFI entered into a loan agreement with an unaffiliated lender that provides for a revolving line of credit for up to $75 million. Theloan agreement matures in five years, with an option to extend the maturity date subject to certain conditions, and bears interest at 90 day LIBOR plus 350basis points (3.50%). We are required to meet certain financial covenants during the term of the loan, including minimum capital levels and limits onclassified assets. As of December 31, 2018, FFI was not in compliance with a covenant on this loan agreement that requires the Company to maintain aminimum total risk based capital ratio of 11.00%. At December 31, 2018, FFI had a total risk based capital ratio of 10.99%. The Company’s obligations underthe loan agreement are secured by, among other things, a pledge of all of its equity in FFB.The Bank also has $120 million available unsecured fed funds lines, ranging in size from $20 million to $25 million, with five other financialinstitutions and a $69 million secured line with the Federal Reserve Bank. None of these lines had outstanding borrowings as of December 31, 2018.Combined, the Bank’s unused lines of credit as of December 31, 2018 were $1.5 million. The average daily balance of overnight borrowings outstandingduring 2018, 2017 and 2016 was $557 million, $499 million and $507 million, respectively. NOTE 12: SHAREHOLDERS’ EQUITY 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 itsexisting cash and cash equivalents and dividends from its subsidiaries. The Bank is subject to various laws and regulations that limit the amount of dividendsthat a bank can pay without obtaining prior approval from bank regulators. Additionally, under the terms of the holding company line of credit agreement,FFI may only declare and pay a dividend if the total amount of dividends and stock repurchases during the current twelve months does not exceed 50% ofFFI’s net income for the same twelve month period. As of December 31, 2018, FFI’s cash and cash equivalents totaled $6.7 million. NOTE 13: EARNINGS PER SHAREAll of the Company’s share and per share computations have been adjusted to reflect the impact of the two-for-one stock split that was effective asof January 18, 2017. The following table sets forth the Company’s earnings per share calculations for the years ended December 31: 2018 2017 2016 (dollars in thousands, except share andper share amounts) Basic Diluted Basic Diluted Basic Diluted Net income $42,958 $42,958 $27,582 $27,582 $23,303 $23,303 Basic common shares outstanding 42,092,361 42,092,361 34,482,630 34,482,630 32,365,800 32,365,800 Effect of options, restricted stockand contingent shares issuable 474,747 848,429 1,106,016 Diluted common sharesoutstanding 42,567,108 35,331,059 33,471,816 Earnings per share $1.02 $1.01 $0.80 $0.78 $0.72 $0.70 Based on a weighted average basis, options to purchase 6,588 shares of common stock were excluded for 2016 because their effect would havebeen anti-dilutive. 94 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 NOTE 14: STOCK BASED COMPENSATIONIn 2007, the Board of Directors of FFI approved two equity incentive plans that provided for the grant of stock options, shares of restricted stock,restricted stock units (“RSUs”), stock bonus awards and performance awards (collectively, “Equity Incentive Awards”) to the Company’s executive officers,other key employees and directors up to 1,300,282 shares of the FFI’s common stock. In 2010, shareholders approved an increase of 580,000 in the number ofshares available for issuance under one of these plans. In 2015, shareholders approved a new equity incentive plan whereby: the Company can no longerissue Equity Incentive Awards under the previously approved plans; 750,000 shares of common stock will be available for the grant of Equity IncentiveAwards to the Company’s executive officers, other key employees and directors; Equity Incentive Awards that are outstanding under the prior plans willremain outstanding and unchanged and subject to the terms of those Plans; and upon termination, cancellation or forfeiture of any of the Equity IncentiveAwards that are outstanding under the prior plans, those shares will be added to the pool of shares available for future grants of Equity Incentive Awardsunder the plan approved in 2015. The Company recognized stock-based compensation expense of $2.6 million, $1.8 million, and $0.9 million in 2018,2017, and 2016, respectively. Included in the 2018 amount is $2.6 million of expense related to RSUs. Stock options, when granted, have an exercise price not less than the current market value of the common stock and expire after ten years if notexercised. If applicable, vesting periods are set at the date of grant and the Plans provide for accelerated vesting should a change in control occur.The following table summarizes the activities in the Plans during 2018: (dollars in thousands exceptper share amounts) Options Granted Weighted AverageExercise Price perShare Weighted AverageRemainingContractual Term AggregateIntrinsic Value Balance: December 31, 2017 900,884 $7.73 Options granted — — Options exercised (308,334) 7.64 Options forfeited — — Balance: December 31, 2018 592,550 7.78 2.88 Years $3,012 Options exercisable 592,550 $7.78 7.78 Years $3,012 The intrinsic value of stock options exercised in 2018 was $3.2 million.The following table summarizes the activities in the Plans during 2017: (dollars in thousands exceptper share amounts) Options Granted Weighted AverageExercise Price perShare Weighted AverageRemainingContractual Term AggregateIntrinsic Value Balance: December 31, 2016 1,972,884 $6.34 Options granted — — Options exercised (1,072,000) 5.18 Options forfeited — — Balance: December 31, 2017 900,884 7.73 3.37 Years $9,738 Options exercisable 900,884 $7.73 3.37 Years $9,738 The intrinsic value of stock options exercised in 2017 was $11.7 million.95 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 The following table summarizes the activities in the Plans during 2016: (dollars in thousands exceptper share amounts) Options Granted Weighted AverageExercise Price perShare Weighted AverageRemainingContractual Term AggregateIntrinsic Value Balance: December 31, 2015 2,716,834 $6.35 Options granted — — Options exercised (690,592) 6.17 Options forfeited (53,358) 9.18 Balance: December 31, 2016 1,972,884 6.34 2.45 Years $15,601 Options exercisable 1,945,032 $6.30 2.39 Years $15,457 The intrinsic value of stock options exercised in 2016 was $3.8 million.The following table provides a summary of the RSUs issued by the Company under its equity incentive plans for the periods ended December 31: 2018 2017 2016 Shares WeightedAverage GrantDate Fair Value Shares WeightedAverage GrantDate Fair Value Shares WeightedAverage GrantDate Fair Value Balance: January 1 149,766 $14.73 117,308 $10.19 134,728 $9.93 New RSUs 119,438 18.03 110,463 17.62 50,568 11.15 Shares vested and issued (154,884) 15.23 (78,005) 12.01 (67,988) 10.39 RSUs forfeited — — — — — — Balance December 31 114,320 $17.51 149,766 $14.73 117,308 $10.19 The fair value of the shares vested and issued was $2.8 million, $1.3 million and $0.8 million in 2018, 2017 and 2016, respectively. As ofDecember 31, 2018, the Company had $0.5 million of unrecognized compensation costs related to outstanding RSUs, which will be recognized throughNovember, 2022, subject to the related vesting requirements. NOTE 15: 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 ofage or older who have completed three months of employment. Each employee eligible to participate in the 401k Plan may contribute up to 100% of his orher compensation, subject to certain statutory limitations. In 2018, the Company matched 100% of a participant’s contribution up to 3% of a participant’scompensation and an additional 50% of a participant’s contribution up to the next 2% of a participant’s compensation. In 2017 and 2016, the Companymatched 50% of a participant’s contribution up to 5% of a participant’s compensation. These employer contributions are subject to the plan’s vestingschedule. The Company contributions of $1.7 million, $0.9 million and $0.7 million were included in Compensation and Benefits for 2018, 2017 and 2016,respectively. The Company may also make an additional profit sharing contribution on behalf of eligible employees. No profit sharing contributions weremade in 2018, 2017 or 2016. 96 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 NOTE 16: INCOME TAXESTaxes on income for 2017, and net deferred tax assets as of December 31, 2017, reflect a $5.4 million adjustment recorded as a result of theenactment of H.R.1, the Tax Cuts and Jobs Act which reduced Company’s applicable Federal tax rate from 35% to 21% effective January 1, 2018. Theadjustment resulted in lower net deferred tax assets and higher taxes on income.The Company is subject to federal income tax and California franchise tax. Income tax expense (benefit) was as follows for the years endedDecember 311: (dollars in thousands) 2018 2017 2016 Current expense: Federal $10,168 $14,122 $10,235 State 5,768 4,384 3,459 Deferred expense (benefit): Federal 919 4,677 1,263 State 273 (166) 74 Total $17,128 $23,017 $15,031 The following is a comparison of the federal statutory income tax rates to the Company’s effective income tax rate for the years endedDecember 31: 2018 2017 2016 (dollars in thousands) Amount Rate Amount Rate Amount Rate Income before taxes $60,086 $50,599 $38,334 Federal tax statutory rate $12,618 21.00% $17,710 35.00% $13,417 35.00%State tax, net of Federal benefit 4,876 8.12% 3,313 6.55% 2,510 6.55%Windfall benefit – exercise of stock options (816) (1.36)% (3,762) (7.43)% (1,025) (2.67)%Change in federal rate — —% 5,414 10.70% — —%Other items, net 450 0.75% 342 0.68% 129 0.34%Effective tax rate $17,128 28.51% $23,017 45.49% $15,031 39.22%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 balance sheets atDecember 31: (dollars in thousands) 2018 2017 Deferred tax assets (liabilities) Allowance for loan and REO losses $4,847 $4,741 Operating loss carryforwards 2,918 3,157 State taxes 1,166 921 Stock-based compensation 642 678 Market valuation: Acquired loans and REO 5,695 2,505 Capital activities – mark to market 103 — Accrued vacation 561 418 Organizational expenses 192 179 Core deposit intangible (3,197) (1,817)Prepaid expenses (680) (586)Depreciation (672) (833)Accumulated other comprehensive income 476 2,105 Other 1,200 675 Net deferred tax assets $13,251 $12,143 97 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 As part of the merger with DCB, the Company acquired operating loss carryforwards of $13.4 million. These operating loss carryforwards aresubject to limitation under Section 382 of the Internal Revenue Service Code and expire in 2032. As a result, the Company will only be able to utilizeoperating loss carryforwards of $8.2 million, ratably over a period of 20 years. As part of the merger with PRB, the Company acquired operating losscarryforwards of $3.9 million. These operating loss carryforwards are subject to limitation under Section 382 of the Internal Revenue Service Code and expirein 2035. As part of the mergers with C1B and PBB, the Company acquired operating loss carryforwards of $0.7 and $3.3 million, respectively. Theseoperating loss carryforwards are subject to limitation under Section 382 of the Internal Revenue Service Code and expire in 2037. As of December 31, 2018,the remaining operating loss carryforwards from DCB, PRB, C1B, and PBB available to be utilized by the Company were $10.1 million. 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 2016 through 2018 are open to audit by federal authorities, for the periods 2014 through 2018 by California stateauthorities, and for 2015 through 2018 by Hawaii state authorities. NOTE 17: COMMITMENTS AND CONTINGENCIESLeasesThe Company leases certain facilities for its corporate offices and branch operations under non-cancelable operating leases that expire through2026. Lease expense for 2018, 2017, and 2016 was $5.8 million, $5.2 million, and $4.9 million, respectively. Future minimum lease commitments under allnon-cancelable operating leases at December 31, 2018 are as follows: (dollars in thousands) Year Ending December 31, 2019 $6,075 2020 5,785 2021 5,507 2022 4,573 2023 and after 3,842 Total $25,782 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 customersand to reduce exposure to fluctuations in interest rates. These financial instruments may include commitments to extend credit and standby and commercialletters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in thecontract. Standby and commercial letters of credit and financial guarantees are conditional commitments issued by the Bank to guaranty the performance of acustomer to a third party. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The followingtable provides the off-balance sheet arrangements of the Bank as of December 31: (dollars in thousands) 2018 2017 Commitments to fund new loans $27,688 $44,561 Commitments to fund under existing loans, lines of credit 352,148 211,712 Commitments under standby letters of credit 12,001 2,352 Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily representfuture cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.The Bank 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.98 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 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 topredict with certainty the outcome of such litigation, it is the opinion of management, based in part upon opinions of counsel, that the liability, if any, arisingfrom such lawsuits would not have a material adverse effect on the Company’s financial position or results of operations. NOTE 18: DERIVATIVES AND HEDGING ACTIVITIESDerivatives, specifically interest rate swaps, are used by the Company to reduce the risk that significant increases in interest rates may have on thevalue of loans held for sale. Derivative transactions are measured in terms of notional amount, which is not recorded in the consolidated statements offinancial condition. The notional amount is generally not exchanged and is used as the basis for interest and other contractual payments. Derivatives arereported at their respective fair values in other assets or other liabilities on the consolidated balance sheet, with changes in fair value recognized currently inearnings. During the fourth quarter of 2018, we entered into two swap agreements, with combined notional amounts of $500 million, to offset the impact ofchanges in interest rates on the value of loans held for sale. These swaps were designated as fair value hedges using the last-of-layer method with the interestrate risk component of the loans held for sale designated as the hedged risk. During the second quarter of 2018, we entered into four interest rate swap agreements, with combined notional amounts of $652 million, tomitigate against the effect of increases in interest rates on loans held for sale. These swaps were designated as a non-hedging activities and were closed out inthe third quarter of 2018. During 2018, the payment of the difference between the fixed and floating rate of these interest rate swaps resulted in a $0.8 millionreduction in loan interest income and the increase in value of these interest rate swaps of $5.9 million was included in gain on sale of loans in 2018. During the second quarter of 2016, we entered into and closed an interest rate swap agreement, with a notional amount of $228 million, to mitigateagainst the effect of increases in interest rates on an outstanding commitment to sell loans. The decrease in value of this interest rate swap of $2.4 million wasrecorded in capital market activities under noninterest income in 2016. The following table provides information related to derivatives designated as hedging instruments as of December 31, 2018: Derivative Assets Derivative Liabilities (dollars in thousands) Balance Sheet Location Fair Value Balance Sheet Location Fair Value Interest rate contracts Other assets $— Other liabilities $5,175 The following table provides the effect of fair value hedge accounting on the consolidated income statement for 2018, including the location andamount of gain or (loss) recognized in income on fair value hedging relationships: (dollars in thousands) Interest Income -Loans Gain or (Loss): Interest contracts: Hedged items $4,821 Derivatives designated as hedging instruments 5,175 As of December 31, 2018, the following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges: 99 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 Balance Sheet Line Item Carrying Amount of the HedgedItem Cumulative Amount of Fair ValueHedging Adjustment Included inthe Carrying Amount ofthe Hedged Item (dollars in thousands) Loans held for sale $507,643 $4,821 These hedges are all designated as hedging relationships in which the hedged item is the last layer expected to be remaining at the end of therelationship. At December 31, 2018, the amortized cost basis of the closed portfolio used in these hedging relationships were $752 million. There were no derivative positions outstanding at December 31, 2017 or December 31, 2016. NOTE 19: 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)2018 2017Balance, January 1$5,910 $5,910 New loans and advances — — Principal payments received (5,910) — Balance, December 31$— $5,910 Interest earned from loans to related parties was $0.1 million in 2018, $0.3 million in 2017 and $0.3 million in 2016. The Bank held $8.3 million and $5.1 million of deposits from related parties, including directors and executive officers of the Company and theiraffiliates, as of December 31, 2018 and December 31, 2017, respectively. Interest paid on deposit accounts held by related parties was $11,000 in 2018,$9,000 in 2017 and $3,000 in 2016. As of December 31, 2018, related parties, including directors and executive officers of the Company and their affiliates, held $29.5 million inassets under management with FFA and FFB. In both 2018 and 2017, the Company received $0.1 million in fees related to these assets under management.Two executive officers of FFB have minority interests in an entity which FFB uses for software services, for which FFB paid $0.2 million in 2018,2017 and 2016. The CEO of the Company is a director of another financial institution that has deposits with the Bank and, in 2018, 2017, and 2016 purchased$52.1 million, $121.9 million and $41.4 million of loans, respectively, from the Bank for which the Bank will continue to provide servicing. The balance ofdeposits held at the Bank at December 31, 2018 was $20.8 million and the interest paid by the Bank was $0.4 million. The gain on sale of loans in 2018,2017 and 2016 was $0.2 million, $1.1 million and $0.6 million, respectively. The amount of loans serviced for this financial institution was $205 million atDecember 31, 2018. In 2013, the Bank participated in a loan to the parent company of this financial institution. This loan was paid off in November 2017.The amount of interest earned on this loan was $0.2 million in each of 2017 and 2016. In 2017, the Bank participated in a sub debt offering from thefinancial institution for $15 million. The Bank earned $0.8 million and $0.1 million from this investment in 2018 and 2017, respectively.The CEO of the Company serves a director of a real estate investment trust that is an affiliate of an investment fund company for which FFAprovides subadvisory services. The amount of AUM managed by FFA under this subadvisory agreement was $277 million and $260 million at December 31,2018 and December 31, 2017, respectively, and the amount of fees earned by FFA were $0.4 million in 2018, 2017 and 2016. 100 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 NOTE 20: REGULATORY MATTERSFFI and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimumcapital requirements can initiate certain mandatory, and possible additional discretionary, actions by regulators that, if undertaken, could have a directmaterial effect on FFI and the Bank’s financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, theCompany and the Bank must meet specific capital guidelines that involve quantitative measures of FFI and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Under a new comprehensive capital framework for U.S. banking organizations,which became effective on January 1, 2015, with certain of their provisions phased-in over a several years through January 1, 2019, the Company (on aconsolidated basis) and FFB (on a stand-alone basis) are required to meet specific capital adequacy requirements that, for the most part, involve quantitativemeasures, primarily in terms of the ratios of their capital to their assets, liabilities, and certain off-balance sheet items, calculated under regulatory accountingpractices. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. FFI’s and the Bank’s capitalamounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by the regulators to ensure capital adequacy require 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) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) toassets (as defined). Management believes, as of December 31, 2018 that FFI and the Bank met all capital adequacy requirements.The following table sets forth the capital and capital ratios of FFI (on a consolidated basis) and FFB (on a stand-alone basis) as of the respectivedates and as compared to the respective regulatory requirements applicable to them: Actual For CapitalAdequacy Purposes To Be Well-CapitalizedUnder Prompt CorrectiveAction Provisions (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio FFI December 31, 2018 CET1 capital ratio $460,600 10.67% $194,179 4.50% Tier 1 leverage ratio 460,600 8.39% 219,694 4.00% Tier 1 risk-based capital ratio 460,600 10.67% 258,906 6.00% Total risk-based capital ratio 481,476 11.16% 345,207 8.00% December 31, 2017 CET1 capital ratio $366,236 11.99% $137,435 4.50% Tier 1 leverage ratio 366,236 8.44% 173,514 4.00% Tier 1 risk-based capital ratio 366,236 11.99% 183,246 6.00% Total risk-based capital ratio 385,236 12.61% 244,328 8.00% BANK December 31, 2018 CET1 capital ratio $453,248 10.51% $194,058 4.50% $280,306 6.50%Tier 1 leverage ratio 453,248 8.26% 219,568 4.00% 274,461 5.00%Tier 1 risk-based capital ratio 453,248 10.51% 258,744 6.00% 344,992 8.00%Total risk-based capital ratio 474,124 10.99% 344,992 8.00% 431,240 10.00%December 31, 2017 CET1 capital ratio $398,709 13.07% $137,290 4.50% $198,308 6.50%Tier 1 leverage ratio 398,709 9.20% 173,363 4.00% 216,703 5.00%Tier 1 risk-based capital ratio 398,709 13.07% 183,053 6.00% 244,071 8.00%Total risk-based capital ratio 417,709 13.69% 244,071 8.00% 305,089 10.00%As of each of the dates set forth in the above table, the Company exceeded the minimum required capital ratios applicable to it and FFB’s capitalratios exceeded the minimums necessary to qualify as a well-capitalized depository institution under the prompt corrective action regulations. The requiredratios for capital adequacy set forth in the above table do not include the additional capital conservation buffer, though each of the Company and FFBmaintained capital ratios necessary to satisfy the capital conservation buffer requirements as of the dates indicated. 101 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 As of December 31, 2018, the amount of capital at FFB in excess of amounts required to be Well Capitalized was $173 million for the CET-1capital ratio, $179 million for the Tier 1 leverage ratio, $108 million for the Tier 1 risk-based capital ratio and $43 million for the Total risk-based capitalratio. No conditions or events have occurred since December 31, 2018 that we believe have changed FFI’s or FFB’s capital adequacy classifications fromthose set forth in the above table.If a banking organization does not hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-basedcapital requirements, it will face constraints on dividends, equity repurchases and executive compensation based on the amount of the shortfall. The capitalbuffer is measured against risk weighted assets and is therefore not applicable to the tier 1 leverage ratio. The implementation of the capital conservationbuffer began on January 1, 2016 at 0.625%, and increased by 0.625% on each subsequent January 1, until it reached 2.5% on January 1, 2019. The followingtable sets forth the minimum capital ratios plus the applicable increment of the capital conservation buffer as of the current year and the fully implementedratios that took effect on January 1, 2019: 2018 2019CET-1 to risk-weighted assets 6.375% 7.000%Tier 1 capital (i.e., CET-1 plus Additional Tier 1) to risk-weighted assets 7.875% 8.500%Total capital (i.e., Tier 1 plus Tier 2) to risk-weighted assets 9.875% 10.500% NOTE 21: OTHER EXPENSESThe following items are included in the consolidated income statements as professional services and marketing costs and other expenses for theyears ended December 31: (dollars in thousands) 2018 2017 2016 Regulatory assessments $3,652 $2,677 $2,224 Directors’ compensation expenses 596 540 543 Acquisition expenses 3,794 2,640 — 102 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 NOTE 22: SEGMENT REPORTINGIn 2018, 2017, and 2016 the Company had two reportable business segments: Banking (FFB) and Wealth Management (FFA). The results of FFIand any elimination entries are included in the column labeled Other. The reportable segments are determined by products and services offered and thecorporate structure. Business segment earnings before taxes are the primary measure of the segment's performance as evaluated by management. Businesssegment earnings before taxes include direct revenue and expenses of the segment as well as corporate and inter-company cost allocations. Allocations ofcorporate expenses, such as finance and accounting, data processing and human resources, are calculated based on estimated activity or usage levels. Themanagement accounting process measures the performance of the operating segments based on the Company's management structure and is not necessarilycomparable with similar information for other financial services companies. If the management structures and/or the allocation process changes, allocations,transfers and assignments may change. The following tables show key operating results for each of our business segments used to arrive at our consolidatedtotals for the years ended December 31: (dollars in thousands) Banking WealthManagement Other Total 2018: Interest income $207,306 $— $— $207,306 Interest expense 49,935 — 1,761 51,696 Net interest income 157,371 — (1,761) 155,610 Provision for loan losses 4,220 — — 4,220 Noninterest income 11,322 25,247 (798) 35,771 Noninterest expense 100,778 21,670 4,627 127,075 Income (loss) before taxes on income $63,695 $3,577 $(7,186) $60,086 2017: Interest income $136,801 $— $— $136,801 Interest expense 22,530 — 653 23,183 Net interest income 114,271 — (653) 113,618 Provision for loan losses 2,762 — — 2,762 Noninterest income 16,016 23,556 (853) 38,719 Noninterest expense 73,990 20,469 4,517 98,976 Income (loss) before taxes on income $53,535 $3,087 $(6,023) $50,599 2016: Interest income $100,642 $— $— $100,642 Interest expense 11,193 — — 11,193 Net interest income 89,449 — — 89,449 Provision for loan losses 4,681 — — 4,681 Noninterest income 13,832 21,348 (620) 34,560 Noninterest expense 58,422 19,232 3,340 80,994 Income (loss) before taxes on income $40,178 $2,116 $(3,960) $38,334 103 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 The following tables show the financial position for each of our business segments, and of FFI which is included in the column labeled Other, andthe eliminating entries used to arrive at our consolidated totals at December 31: (dollars in thousands) Banking WealthManagement Other Eliminations Total 2018: Cash and cash equivalents $67,148 $4,636 $6,728 $(11,200) $67,312 Securities AFS 809,569 — — — 809,569 Loans held for sale 507,643 — — — 507,643 Loans, net 4,274,669 — — — 4,274,669 Premises and equipment 8,221 788 136 — 9,145 FHLB Stock 20,307 — — — 20,307 Deferred taxes 12,905 103 243 — 13,251 REO 815 — — — 815 Goodwill and Intangibles 99,482 — — — 99,482 Other assets 35,906 605 555,465 (553,757) 38,219 Total assets $5,836,665 $6,132 $562,572 $(564,957) $5,840,412 Deposits $4,544,168 $— $— $(11,200) $4,532,968 Borrowings 703,000 — 5,000 — 708,000 Intercompany balances 3,689 467 (4,156) — — Other liabilities 34,886 2,830 2,544 — 40,260 Shareholders’ equity 550,922 2,835 559,184 (553,757) 559,184 Total liabilities and equity $5,836,665 $6,132 $562,572 $(564,957) $5,840,412 2017: Cash and cash equivalents $120,261 $4,407 $12,664 $(16,938) $120,394 Securities AFS 519,364 — — — 519,364 Loans held for sale 154,380 — — — 154,380 Loans, net 3,645,327 — — — 3,645,327 Premises and equipment 5,519 926 136 — 6,581 FHLB Stock 19,060 — — — 19,060 Deferred taxes 12,008 172 (37) — 12,143 REO 2,920 — — — 2,920 Goodwill and Intangibles 33,576 — — — 33,576 Other assets 25,521 179 431,335 (429,595) 27,440 Total assets $4,537,936 $5,684 $444,098 $(446,533) $4,541,185 Deposits $3,460,465 $— $— $(16,938) $3,443,527 Borrowings 628,000 — 50,000 — 678,000 Intercompany balances 3,301 643 (3,944) — — Other liabilities 18,646 2,970 3,091 — 24,707 Shareholders’ equity 427,524 2,071 394,951 (429,595) 394,951 Total liabilities and equity $4,537,936 $5,684 $444,098 $(446,533) $4,541,185 104 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 NOTE 23: QUARTERLY FINANCIAL INFORMATION (Unaudited) (dollars in thousands,except per share amounts) FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Full Year Year Ended December 31, 2018: Interest income $43,319 $48,498 $58,047 $57,442 $207,306 Interest expense 9,051 12,247 14,321 16,077 51,696 Net interest income 34,268 36,251 43,726 41,365 155,610 Provision for loan losses 1,688 2,450 9 73 4,220 Noninterest income 8,982 6,984 11,104 8,701 35,771 Noninterest expense 28,988 33,982 33,967 30,138 127,075 Income before taxes on income 12,574 6,803 20,854 19,855 60,086 Taxes on income 3,598 1,657 6,147 5,726 17,128 Net income $8,976 $5,146 $14,707 $14,129 $42,958 Income per share Basic $0.23 $0.13 $0.33 $0.32 $1.02 Diluted $0.23 $0.12 $0.33 $0.31 $1.01 Year Ended December 31, 2017: Interest income $30,360 $33,652 $34,878 $37,911 $136,801 Interest expense 4,302 5,757 6,438 6,686 23,183 Net interest income 26,058 27,895 28,440 31,225 113,618 Provision for loan losses 69 1,092 701 900 2,762 Noninterest income 7,783 9,697 9,863 11,376 38,719 Noninterest expense 24,709 22,213 23,393 28,661 98,976 Income before taxes on income 9,063 14,287 14,209 13,040 50,599 Taxes on income 2,950 4,671 4,629 10,767 23,017 Net income $6,113 $9,616 $9,580 $2,273 $27,582 Income per share Basic $0.19 $0.29 $0.28 $0.06 $0.80 Diluted $0.18 $0.28 $0.27 $0.06 $0.78 Year Ended December 31, 2016: Interest income $21,698 $24,573 $26,004 $28,367 $100,642 Interest expense 2,337 2,652 2,841 3,363 11,193 Net interest income 19,361 21,921 23,163 25,004 89,449 Provision for loan losses 400 1,250 1,231 1,800 4,681 Noninterest income 6,985 4,910 15,079 7,586 34,560 Noninterest expense 19,417 19,850 21,536 20,191 80,994 Income before taxes on income 6,529 5,731 15,475 10,599 38,334 Taxes on income 2,742 2,407 5,800 4,082 15,031 Net income $3,787 $3,324 $9,675 $6,517 $23,303 Income per share Basic $0.12 $0.10 $0.30 $0.20 $0.72 Diluted $0.11 $0.10 $0.29 $0.19 $0.70 105 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 NOTE 24: PARENT ONLY FINANCIAL STATEMENTSBALANCE SHEETS December 31, (dollars in thousands) 2018 2017 ASSETS Cash and cash equivalents $6,728 $12,664 Premises and equipment, net 136 136 Deferred taxes 243 (37)Investment in subsidiaries 553,757 429,595 Intercompany receivable 4,156 3,944 Other assets 1,708 1,740 Total Assets $566,728 $448,042 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Borrowings $5,000 $50,000 Accounts payable and other liabilities 2,544 3,091 Total Liabilities 7,544 53,091 Shareholders’ Equity Common Stock 44 38 Additional paid-in-capital 431,832 314,501 Retained earnings 128,461 85,503 Accumulated other comprehensive income (loss), net of tax (1,153) (5,091)Total Shareholders’ Equity 559,184 394,951 Total Liabilities and Shareholders’ Equity $566,728 $448,042 INCOME STATEMENTS For the Year EndedDecember 31, (dollars in thousands) 2018 2017 2016 Interest expense—borrowings $1,761 $653 $— Noninterest income: Earnings from investment in subsidiaries 48,153 31,547 25,498 Other income 194 — — Total noninterest income 48,347 31,547 25,498 Noninterest expense: Compensation and benefits 1,395 1,302 971 Occupancy and depreciation 197 197 96 Professional services and marketing costs 2,790 2,741 1,929 Other expenses 1,237 1,130 964 Total noninterest expense 5,619 5,370 3,960 Income before taxes on income 40,967 25,524 21,538 Taxes on income (1,991) (2,058) (1,765)Net income $42,958 $27,582 $23,303 106 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 STATEMENTS OF COMPREHENSIVE INCOME For the Year EndedDecember 31, (dollars in thousands) 2018 2017 2016 Net income $42,958 $27,582 $23,303 Other comprehensive income (loss): Unrealized holding gains (losses) on securities arising during the period 5,567 1,717 (6,697)Other comprehensive income (loss) before tax 5,567 1,717 (6,697)Income tax (expense) benefit related to items of other comprehensive income (1,629) (707) 2,122 Other comprehensive income (loss) 3,938 1,010 (4,575)Less: Reclassification adjustment for gains (loss) included in net earnings — — 1,043 Income tax (expense) benefit related to reclassification adjustment — — (409)Reclassification adjustment for gains included in net earnings, net of tax — — 634 Other comprehensive income (loss), net of tax 3,938 1,010 (3,941)Total comprehensive income $46,896 $28,592 $19,362 STATEMENTS OF CASH FLOWS For the Year EndedDecember 31, (dollars in thousands) 2018 2017 2016 Cash Flows from Operating Activities: Net income $42,958 $27,582 $23,303 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Earnings from investment in subsidiaries (48,153) (31,547) (25,498)Stock–based compensation expense 65 61 78 Deferred tax liability (benefit) (280) (37) 296 Increase in other assets 32 (29) (1,464)Increase (decrease) in accounts payable and other liabilities (547) 3,161 (1,102)Net cash used in operating activities (5,925) (809) (4,387)Cash Flows from Investing Activities: Investment in subsidiaries — (72,845) (40,000)Dividend from subsidiary 32,000 2,000 5,000 Purchase of premises and equipment — — (24)Net cash provided by (used in) investing activities 32,000 (70,845) (35,024)Cash Flows from Financing Activities: Proceeds from borrowings — 50,000 — Paydowns of borrowings (45,000) — — Proceeds from the sale of stock, net 13,698 28,386 4,267 Repurchase of stock (497) — — Intercompany accounts, net decrease (increase) (212) (386) (689)Net cash (used in) provided by financing activities (32,011) 78,000 3,578 Increase (decrease) in cash and cash equivalents (5,936) 6,346 (35,833)Cash and cash equivalents at beginning of year 12,664 6,318 42,151 Cash and cash equivalents at end of year $6,728 $12,664 $6,318 NOTE 25: SUBSEQUENT EVENTS107 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)Years Ended December 31, 2018, 2017, and 2016 Cash DividendOn January 29, 2019, the Board of Directors of the Company declared an initial quarterly cash dividend of $0.05 per common share to be paid onMarch 15, 2019 to stockholders of record as of the close of business on March 1, 2019. 108 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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. Item 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, 2018, 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, 2018, 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 during the quarter ended December 31, 2018 that has materiallyaffected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.Internal Control Over Financial ReportingManagement’s Annual Report on Internal Control Over Financial ReportingManagement of First Foundation Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as definedin Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withaccounting principles generally accepted in the United States of America. Internal control over financial reporting includes those written policies andprocedures that: •pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; •provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withaccounting principles generally accepted in the United States of America; •provide reasonable assurance that our receipts and expenditures are being made only in accordance with authorization of our managementand board of directors; and •provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that couldhave a material effect on our consolidated financial statements.Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions taken to correctdeficiencies as identified. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of the effectiveness of such controls to future periods are subject to the risks that the controls may become inadequate becauseof changes in conditions or because the degree of compliance with the policies or procedures may deteriorate.109 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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. Management’s Assessment of Internal Control over Financial ReportingOur management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, based on criteriafor effective internal control over financial reporting described in “Internal Control – Integrated Framework” issued by the Committee of SponsoringOrganizations of the Treadway Commission in 2013. Management’s assessment included an evaluation of the design and the testing of the operationaleffectiveness of the Company’s internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of ourBoard of Directors.Based on that assessment, management determined that, as of December 31, 2018, the Company maintained effective internal control overfinancial reporting.The foregoing report on internal control over financial reporting shall not be deemed “filed” for purposes of Section 18 of the Exchange Act orotherwise subject to the liabilities of that section.Vavrinek, Trine, Day & Co., LLP, independent registered public accounting firm, which audited our consolidated financial statements for the fiscalyear ended December 31, 2018 included in this Annual Report on Form 10-K, has audited the effectiveness of our internal control over financial reporting asof December 31, 2018, as stated in their report included Item 8. Item 9B.Other Information.None. 110 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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. PART IIIItem 10.Directors, Executive Officers and Corporate Governance. Except for the information regarding our Code of Conduct below, the information required by this Item 10 is hereby incorporated by reference tothe Company’s definitive proxy statement, expected to be filed with the SEC on or before April 30, 2019, for its 2019 Annual Meeting of Stockholders. Our Board has adopted a Code of Conduct for the Chief Executive Officer and Other Senior Financial Officers (the “Code”) contains specificethical policies and principles that apply to our principal executive officer, principal financial officer, principal accounting officer and other key accountingand financial personnel. The Code constitutes our “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act and is our “code ofconduct” within the meaning of the listing standards of the Nasdaq Stock Market LLC. The Code is available in the Investor Relations section of our website at www.ff-inc.com. To the extent required by applicable rules of the SEC andthe Nasdaq Stock Market LLC, we will disclose on our website any amendments to the Code and any waivers of the requirements of the Code that may begranted to our executive officers, including our principal executive officer, principal financial officer, principal accounting officer or persons performingsimilar functions.Item 11.Executive CompensationThe information required by this Item 11 is hereby incorporated by reference to the Company’s definitive proxy statement, expected to be filedwith the SEC on or before April 30, 2019, for its 2019 Annual Meeting of Stockholders.Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.The information required by this Item 12 is hereby incorporated by reference to the Company’s definitive proxy statement, expected to be filedwith the SEC on or before April 30, 2019, for its 2019 Annual Meeting of Stockholders.Item 13.Certain Relationships and Related Transactions, and Director Independence.The information required by this Item 13 is hereby incorporated by reference to the Company’s definitive proxy statement, expected to be filedwith the SEC on or before April 30, 2019, for its 2019 Annual Meeting of Stockholders.Item 14.Principal Accounting Fees and ServicesThe information required by this Item 14 is hereby incorporated by reference to the Company’s definitive proxy statement, expected to be filedwith the SEC on or before April 30, 2019, for its 2019 Annual Meeting of Stockholders. 111 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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. PART IVItem 15.Exhibits, Financial Statement Schedules. (a)Financial Statements, Financial Statement SchedulesSee page 61 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. Item 16. Form 10-K Summary. None 112 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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. INDEX OF EXHIBITS Exhibit No. Description2.1 Agreement and Plan of Merger, dated October 28, 2015, entered into by First Foundation Inc., a California corporation, and First FoundationInc., a Delaware corporation, to effectuate the Delaware reincorporation (incorporated by reference to Exhibit 2.99 to the Company’s CurrentReport on Form 8-K, filed on October 29, 2015). 2.2 Agreement and Plan of Merger, dated November 25, 2014, by and among the Company, First Foundation Bank and Pacific Rim Bank(incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on December 1, 2014). 2.3 Agreement and Plan of Merger, as amended, dated June 29, 2011, by and among the Company, First Foundation Bank and DesertCommercial Bank, together with First, Second and Third Amendments thereto (incorporated by reference to Exhibit 10.11 to the Company’sRegistration Statement on Form 10, filed on October 17, 2013). 2.4 Agreement and Plan of Reorganization and Merger, dated as of June 14, 2017, by and between the Company and Community 1st Bancorp(incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on June 15, 2017). 2.5 Agreement and Plan of Reorganization and Merger, dated as of December 18, 2017, by and between the Company and PBB Bancorp(incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on December 19, 2017). 3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filedon October 29, 2015). 3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on October 29,2015). 4.1 Specimen Certificate for Common Stock (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K/A, filedon August 3, 2015). 10.1(1) First Foundation Inc. 2007 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement onForm 10, filed on October 17, 2013). 10.2(1) First Foundation Inc. 2007 Management Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s RegistrationStatement on Form 10, filed on October 17, 2013). 10.3(1) First Foundation Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.99 to the Company’s Registration Statement onForm S-8, filed on October 28, 2015). 10.4(1) First Foundation Inc. Form of Restricted Stock Unit Agreement for 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 tothe Company’s Annual Report on Form 10-K, filed on March 15, 2016). 10.5(1) First Foundation Inc. Form of Stock Option Agreement for 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to theCompany’s Annual Report on Form 10-K, filed on March 15, 2016). 10.6(1) Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.99 to the Company’s Current Report onForm 8-K, filed on October 30, 2015). 10.7(1) Amended and Restated Employment Agreement, dated December 31, 2009, by and between the Company, First Foundation Advisors andUlrich E. Keller, Jr., together with First and Second Amendments thereto (incorporated by reference to Exhibit 10.4 to the Company’sRegistration Statement on Form 10, filed on October 17, 2013), Third Amendment thereto, dated January 26, 2016 (incorporated byreference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on February 1, 2016), and Fourth Amendment thereto, datedFebruary 7, 2018 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on February 7, 2018). E-1Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 No. Description10.8(1) Amended and Restated Employment Agreement, dated December 31, 2009, by and between the Company, FirstFoundation Bank and Scott F. Kavanaugh, together with First and Second Amendments thereto (incorporated by reference to Exhibit 10.5 tothe Company’s Registration Statement on Form 10, filed on October 17, 2013), Third Amendment thereto, dated January 26, 2016(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on February 1, 2016), and FourthAmendment thereto, dated February 7, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filedon February 7, 2018).10.9(1) Amended and Restated Employment Agreement, dated December 31, 2009, by and between the Company, First Foundation Bank, FirstFoundation Advisors and John Michel, together with First and Second Amendments thereto (incorporated by reference to Exhibit 10.14 tothe Company’s Annual Report on Form 10-K filed on March 25, 2014), Third Amendment thereto, dated January 26, 2016 (incorporated byreference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on February 1, 2016), and Fourth Amendment thereto, datedFebruary 7, 2018 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on February 7, 2018). 10.10(1) Employment Agreement, dated May 11, 2015, by and between First Foundation Bank and David DePillo (incorporated by reference toExhibit 10.21 to the Company’s Quarterly Report on Form 10-Q, filed on May 11, 2015), and First Amendment thereto, dated February 7,2018 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed on February 7. 2018). 10.11(1)(2) Employment Agreement, dated June 1, 2015, by and between First Foundation Bank and Lindsay Lawrence, and First Amendment thereto. 10.12(1) Change of Control Agreement, dated September 17, 2007, by and between the Company and Ulrich E. Keller, Jr. (incorporated by referenceto Exhibit 10.7 to the Company’s Registration Statement on Form 10, filed on October 17, 2013). 10.13(1) Change of Control Agreement, dated September 17, 2007, by and between the Company and Scott F. Kavanaugh (incorporated by referenceto Exhibit 10.8 to the Company’s Registration Statement on Form 10, filed on October 17, 2013). 10.14(1) Change of Control Agreement, dated September 17, 2007, by and between the Company and John Michel (incorporated by reference to theExhibit 10.16 to the Company’s Annual Report on Form 10-K, filed on March 25, 2014). 10.15(1) Change of Control Agreement, dated May 11, 2015, by and between the Company and David DePillo (incorporated by reference to Exhibit10.22 to the Company’s Quarterly Report on Form 10-Q, filed on May 11, 2015). 10.16(1)(2) Change of Control Agreement, dated June 1, 2015, by and between the Company and Lindsay Lawrence. 10.17 Loan Agreement, dated February 8, 2017, by and between the Company, as borrower, and NexBank SSB, as lender (incorporated byreference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed February 9, 2017). 10.18 First Amendment to Loan Agreement, dated May 18, 2017, by and between the Company and NexBank SSB (incorporated by reference toExhibit 10.1 to the Company’s Current Report on Form 8-K, filed May 22, 2017). 10.19 Second Amendment to Loan Agreement, dated April 6, 2018, by and between the Company and NexBank SSB (incorporated by reference toExhibit 10.1 to the Company’s Current Report on Form 8-K, filed April 9, 2018). 10.20 Third Amendment to Loan Agreement, dated October 30, 2018, by and between the Company and NexBank SSB (incorporated by referenceto Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed October 31, 2018). 10.21 Pledge and Security Agreement, dated as of February 8, 2017, by and between the Company and NexBank SSB (incorporated by referenceto Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed February 9, 2017). 10.22 Equity Distribution Agreement dated February 16, 2017, by and among the Company, First Foundation Bank, FBR Capital Markets & Co.,Raymond James & Associates, Inc., Sandler O’Neill & Partners, L.P., and D.A. Davidson & Co (incorporated by reference to Exhibit 1.1 tothe Company’s Current Report on Form 8-K, filed on February 17, 2017). 14.1 Code of Conduct for the Chief Executive Officer and Other Senior Financial Officers (incorporated by reference to Exhibit 14.1 to theCompany’s Annual Report on Form 10-K, filed on March 25, 2014). E-2Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 No. Description21.1(2) Subsidiaries of the Registrant.23.1(2) Consent of Vavrinek, Trine, Day & Co., LLP, independent registered public accounting firm. 24.1 Power of Attorney (included on signature page of this Annual Report on Form 10-K). 31.1(2) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2(2) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1(2) Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2(2) Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101(2) XBRL (eXtensive Business Reporting Language). The following financial materials from the Company’s Quarterly Report on Form 10-K forthe period ended December 31, 2018, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed ConsolidatedStatements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Condensed Consolidated Statements of Cash Flows,and (v) Notes to Condensed Consolidated Financial Statements. (1)Management contract or compensatory plan.(2)Filed herewith. E-3Source: First Foundation Inc., 10-K, March 01, 2019Powered 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. SIGNATURESPursuant 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 in Irvine California on March 1, 2019. 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 each ofthem, 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, place andstead, 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 persons inthe capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ SCOTT F. KAVANAUGH Scott F. Kavanaugh Chief Executive Officer and Director(Principal Executive Officer) March 1, 2019 /s/ JOHN M. MICHEL John M. Michel Chief Financial Officer(Principal Financial and Accounting Officer) March 1, 2019 /s/ ULRICH E. KELLER, JR. Ulrich E. Keller, Jr. Chairman and Director March 1, 2019 /s/ JAMES BRAKKE James Brakke Director March 1, 2019 /s/ MAX BRIGGS Max Briggs Director March 1, 2019 /s/ MARTHA CORBETT Martha Corbett Director March 1, 2019 /s/ WARREN D. FIX Warren D. Fix Director March 1, 2019 /s/ JOHN HAKOPIAN John Hakopian Director March 1, 2019 /s/ DAVID LAKE David Lake Director March 1, 2019 /s/ MITCHELL M. ROSENBERG Mitchell M. Rosenberg Director March 1, 2019 /s/ JACOB SONENSHINE Jacob Sonenshine Director March 1, 2019 S-1Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 10.11EMPLOYMENT AGREEMENTThis EMPLOYMENT AGREEMENT (the “Agreement”) is made as of June 1, 2015, (the Effective Date”) by and betweenFirst Foundation Bank, a California state chartered banking corporation (the “Employer”), and Lindsay Lawrence (the “Executive”).WHEREAS, Employer is a bank chartered by the Department of Business Oversight of the State of California (the “DBO”)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 desires to employ Executive, and Executive desires to be employed by Employer, in accordance withthe terms and subject to the conditions hereof.NOW, 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.Employment. Employer agrees to employ Executive and Executive agrees to be employed by Employer, on a fulltime basis, on the terms and conditions set forth in this Agreement.2.Capacity. The Executive shall serve the Employer as its Executive Vice President and Director of DepositoryServices. The Executive shall be principally responsible for managing the Private Banking Team, establishing new client relationshipsand generating new deposits subject to the directions of the Employer’s Board of Directors (the “Board”), Chief Executive Officer (the“CEO”) or President. Executive shall also serve Employer in such other or additional offices and capacities as the Executive may berequested to serve by the Board, the CEO or the President and shall perform such services and duties in connection with the business,affairs and operations of, Employer as may be assigned or delegated from time to time to Executive, when rendering services in suchother or additional capacities, by or under the authority of the Board, the CEO or the President.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)hereof and in such form or manner as shall not require any material activities on Executive’s part in connection with the operations oraffairs of the 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 impairExecutive’s ability to fulfill his/her duties and responsibilities under this Agreement.4.Term. Unless sooner terminated pursuant to Section 6 hereof, the term of Executive’s employment with Employerpursuant to this Agreement commences on June 1, 2015 and ends on December 31, 2018 (the “Term”).Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 Agreementshall be as follows:(a)Salary. For all services rendered by Executive under this Agreement, Employer shall pay Executive asalary at the annual rate of Two Hundred and Fifty Thousand ($250,000), 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 programsfor Employer’s senior executives; provided, however, that nothing contained in this Section 5(b) or elsewhere in this Agreement shallbe construed to create any obligation on the part of Employer to maintain the effectiveness of any annual incentive bonusprogram. The performance measures and goals that will be used to determine Executive’s entitlement to an annual incentive bonusunder any such bonus 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 otherretirement plans, stock option and equity incentive plans, stock purchase plans, medical insurance plans, life insurance plans, disabilityinsurance or income plans, expense reimbursement plans and other benefit plans which Employer may from time to time have in effectfor all or most of its senior executives; provided, however, that nothing contained in this Section 5(c) or elsewhere in this Agreementshall be construed to create any obligation on the part of Employer to establish any such plan or to maintain the effectiveness of anysuch plan which may be in effect from time to time during the Term. The extent and the terms and conditions of Executive’sparticipation in any such plan shall be subject to the terms and conditions in the applicable plan documents, generally applicablepolicies of the Employer, applicable law and the discretion of the Board, the Compensation Committee or any administrative or othercommittee provided for in or contemplated by any such plan. (d)Reimbursement of Business Expenses. Employer shall reimburse Executive for all reasonable expensesincurred by him/her in performing services pursuant to this Agreement, in accordance with Employer’s expense reimbursement policiesand procedures 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 tomake deductions, withholdings and tax reports with respect to compensation payments and benefits to Executive under this Agreementto the extent that Employer reasonably and in good faith believes that it is required to make such deductions, withholdings and taxreports. Payments under this Agreement shall be in amounts net of any such deductions or withholdings. Nothing in this Agreementshall be construed to require Employer to make any payments to compensate Executive for any adverse tax consequences associatedwith or arising 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 notbe entitled to any payments or benefits other than those expressly provided for in this Agreement.6.2Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Termination of Employment. Notwithstanding the provisions of Section 4, Executive’s employment under this Agreement shallterminate prior to the end of the Term under the following circumstances and in accordance with the terms and provisions set forthbelow in this Section 6.(a)Termination by Employer for Cause. Executive’s employment under this Agreement may be terminatedfor Cause, 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 byExecutive with respect to Employer or any of its Affiliates, or any act of fraud, whether or not involving Employer or anyAffiliate of Employer; or(ii)a violation by Executive of any laws or government regulationsapplicable to Employer which could reasonably be expected to subject Employer or any of its Affiliates (including any oftheir respective officer or directors) to disciplinary or enforcement action by any governmental agency, including theassessment of civil money damages on Employer, or which could reasonably be expected to adversely affect Employer’s orany of its Affiliates reputation or goodwill with clients, customers, regulatory agencies or suppliers doing business with theEmployer or any of its Affiliates; or(iii)the issuance of an order under Section 8(e)(4) or (g)(1) of the FederalDeposit Insurance Act (the “FDIA”) requiring Executive to be removed or permanently prohibited from participating in theconduct of the Employer’s business; or(iv)the commission by Executive of an act which would constitute (A) afelony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud; or(v)any failure of Executive to perform, to the reasonable satisfaction of theBoard, a substantial portion of Executive’s duties and responsibilities assigned or delegated to him/her under thisAgreement, which failure continues, in the judgment of the Board, for more than thirty (30) days following the giving ofwritten notice to Executive of such failure; or(vi)a breach by Executive of any of Executive’s material obligations underthis Agreement, which breach remains uncured within fifteen (15) days following Executive’s receipt of written notice ofthe existence of such breach and, for such purposes, the term “material obligations” shall include each of Executive’scovenants and obligations contained in Section 8 hereof; or(vii)a violation by Executive of any conflict of interest policy, ethicalconduct policy or employment policy adopted by Employer or Parent or a breach by Executive of any of his/her fiduciaryduties to Employer or Parent; or(viii)the issuance of an order or directive by any government agency havingjurisdiction over Employer or any of its Affiliates or over Executive which requires Executive to disassociate himself/herselffrom Employer or any of its Affiliates, suspends Executive’s employment or requires Employer to terminate Executive’semployment.(b)Termination by Employer Without Cause. Executive’s employment under this Agreement may beterminated by Employer without Cause upon written notice to Executive, whereupon Executive shall become entitled to the severancecompensation and benefits set forth in Section 7(b) of this Agreement. Notwithstanding anything to the contrary that may be containedin this Agreement, it is acknowledged and agreed that a termination pursuant to any of Sections 6(d) (entitled “Termination due toDeath”), 6(e) (entitled “Disability”) or 6(f) (entitled “Expiration of Term”) below, shall not be deemed to be or constitute a terminationwithout Cause for purposes of this Agreement.”3Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 inthis Section 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 andResponsibilities. Employer materially reduces Executive's authority, duties or responsibilities with Employer, unless suchreduction is made as a consequence of (i) any acts or omissions of Executive which would entitle Employer to terminateExecutive’s employment for Cause (as defined in Section 6(a) of this Agreement), or (ii) Executive’s Disability (determinedas provided in Section 6(e) of this Agreement);(ii)Material Reduction in Salary. Employer materially reduces Executive'sbase salary or base compensation below the amount thereof as prescribed by Executive’s Employment Agreement, unlesssuch reduction is made (A) as part of an across-the-board cost-cutting measure that is applied equally or proportionately toall senior executives of Employer, rather than discriminatorily against Executive, or (B) as a result of any acts or omissionsof Executive which would entitle Employer to terminate Executive’s employment for Cause (as defined in Section 6(a) ofthis Agreement), or (C) by and at the election of the Employer as a result of Executive’s Disability (determined as providedin Section 6(e) of this Agreement);(iii)Relocation. Employer relocates Executive’s principal place ofemployment to an office (other than Employer's headquarters offices) located more than thirty (30) miles from Executive’sthen principal place of employment (other than for temporary assignments or required travel in connection with theperformance by Executive of his/her duties for Employer); or(iv)Breach of Material Employment Obligations. Employer commits abreach of any of its material obligations to Executive under this Agreement which breach continues uncured for a period ofthirty (30) days following written 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.(e)4Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Disability. If Executive shall become disabled so as to be unable to perform the essential functions of Executive’s then existing positionor positions with Employer or with any of Employer’s Affiliates under this Agreement, then, upon the expiration of the lesser of (i) six(6) months thereafter or (ii) the then remainder of the Term of this Agreement (the “Interim Disability Period”), Executive’semployment may be terminated by Employer without liability to Executive, subject to the following terms and provisions. The Boardmay remove Executive from any responsibilities and/or reassign Executive to another position with Employer for and the during theInterim Disability Period, provided, however, that Executive shall continue to receive his/her full Base Annual Salary (less any disabilitypay or sick pay benefits to which the Executive may be entitled under the Employer’s policies or benefit programs), together withbenefits Executive receives pursuant to Section 5 hereof (except to the extent that Executive may be ineligible for one or more suchbenefits under applicable plan terms), for and during the Interim Disability Period. If any question shall arise as to whether Executive isdisabled so as to be unable to perform the essential functions of Executive’s then existing position or positions, with or withoutreasonable accommodation, Executive may, and at the request of Employer shall, submit to Employer a physician’s certification (inreasonable detail) as to whether Executive is so disabled and how long such disability is expected to continue. Such certification shallbe obtained only from a physician who is selected by Employer and to whom Executive or Executive’s guardian (as the case may be)has no reasonable objection and the certification so obtained shall for purposes of this Agreement be conclusive of such question or anyissue as to the matters addressed in such certification. Executive shall cooperate with any reasonable request of that physician inconnection with such certification, including a request that Executive undergo any physical or mental examination or tests, as deemedappropriate by such physician. If Executive shall fail to submit to such an examination or any such tests, as such physician deems inhis/her discretion to be appropriate for purposes of enabling physician to make such certification, then, Employer’s determinations withrespect to the questions of whether Executive is disabled and how long such disability is expected to continue shall be binding onExecutive. Nothing in this Section 6(d) shall be construed to waive the Executive’s rights, if any, under existing law including, withoutlimitation, the Family and Medical Leave Act of 1993, 29 U.S.C. §2601 et seq. and the Americans with Disabilities Act, 42 U.S.C.§12101 et seq.(f)Terminations due to Certain Regulatory Actions Affecting Employer. Notwithstanding anything to thecontrary that may be contained elsewhere in this agreement, this Agreement, and Executive’s employment hereunder shall terminate,on the occurrence of any of the following events:(i)A conservator, receiver, or other legal custodian is appointed for theEmployer pursuant to any adjudication or other official determination by any court of competent jurisdiction, the DBO, orany governmental authority having jurisdiction over Employer; or(ii)the Director of the DBO, or his or her designee, requires this Agreementto be terminated due to (A) the entry, by the Federal Deposit Insurance Corporation (the “FDIC”) into an agreement toprovide assistance to or on behalf of the Employer under the authority contained in 13(c) of the FDIA; or (B) the approvalof a supervisory merger to resolve problems related to operations of the Employer or (C) a determination by the DBO or theFDIC that the Employer is in an unsafe or unsound condition.(g)Expiration of Term. Executive’s employment under this Agreement shall terminate automatically on andas of the expiration date of the Term (whether that is at the end of the Original Term or any Renewal Period), unless the parties shallhave executed a written agreement of renewal as contemplated in Section 4 hereof.(h)5Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.Survival. Upon expiration or any termination of Executive’s employment with Employer pursuant to any of the provisions of thisSection 6, this Agreement also shall terminate; provided, however, that the following shall survive and remain in full force and effectafter the expiration or any termination of this Agreement: (i) the respective representations and warranties of each party contained inthis Agreement, which shall continue in effect throughout the Term, and (ii) the respective rights, obligations and covenants andagreements of the parties contained in Sections 7 (entitled "Compensation Upon Termination"), Section 8 (entitled "ProtectiveCovenants"), Section 9 (entitled "Arbitration of Disputes") and Section 10 (entitled "Miscellaneous") hereof.(i)Suspension of Employment. If Executive is suspended and/or temporarily prohibited fromparticipating in the conduct of the Employer’s business by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (a “SuspensionNotice”), the Employer’s obligations under the Agreement shall be suspended as of the date on which service of such SuspensionNotice is made, unless such suspension is stayed by appropriate proceedings. If the charges in the Suspension Notice are dismissed,Employer may, in its discretion (i) pay the Executive all or part of the compensation withheld while Employer’s obligations hereunderwere 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 to Section6(a) above or pursuant to Section 6(f), due to certain Regulatory Actions, then, unless otherwise required by applicable law, Executiveshall 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 atermination of Executive’s employment by Employer without Cause pursuant to Section 6(b) above, or by Executive for Good Reasonpursuant to Section 6(c) above, then subject to Executive’s execution and delivery of an agreement, that is satisfactory in a form andsubstance to Employer, releasing any and all legal claims (known or unknown) Executive may have against Employer or any or itsAffiliates, 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 twelve (12) month period,as the case may be (the “Termination Benefits Period”); and(ii)continuation during the Termination Benefits Period of group health planbenefits to the extent authorized by and consistent with 29 U.S.C. § 1161 et seq. (commonly known as “COBRA”), subjectto payment of premiums by Executive at the active employee’s rate (the Health Insurance Cost Sharing Benefit”).6Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 this Section7(b) shall be construed to affect Executive's right to receive COBRA continuation entirely at Executive's own cost to the extent thatExecutive may continue to be entitled to COBRA continuation after the Executive's Health Insurance Cost Sharing Benefit under thisSection 7(b)(ii) ceases. Executive shall be obligated to give prompt notice of the date of commencement of any employment during theTermination Benefits Period and shall respond promptly to any reasonable inquiries concerning any employment in which Executivemay be engaged during the Termination Benefits Period. The Termination Benefits shall be paid by Employer in installments inaccordance 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 shall pay to Executive’s estate an amount equal to one hundred percent (100%) of Executive’s Base Annual Salary at the ratein effect immediately prior to such termination (the "Death Benefit"), less the amount of any life insurance benefits which Executive'sestate or any 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. Executive shall not be entitled to any payments or benefits due tothe expiration or termination of Executive’s employment with Employer other than those benefits that are expressly provided for in thisSection 7. Without limiting the generality of the foregoing, the Termination Benefits set forth in Section 7(b), together with anyseverance benefits that Executive may be entitled to receive under any separate severance compensation or change of control or stay-pay agreement to which executive may be a party or any separate severance or stay pay plan in which Executive may be a participant,shall constitute the exclusive rights and remedies against Employer and its Affiliates to which Executive shall be entitled by reason oftermination or Executive’s employment by Employer without Cause or by Executive for Good Reason or for any damages arisingtherefrom.8.Protective Covenants.(a)Certain Definitions.(i)Confidential Information. As used in this Agreement, “ConfidentialInformation” means information belonging to Employer or any of its Affiliates which is of value to Employer or any suchAffiliates in the course of conducting any of their respective businesses and the disclosure of which could result in acompetitive or other disadvantage to Employer or any such Affiliates. Confidential Information includes, without limitation,financial information, including financial statements and projections, business and expansion or growth plans, reports, andforecasts; inventions, improvements and other intellectual property; trade secrets; know‑how; designs, processes orformulae; software; market or sales information or plans; customer lists and information regarding, or supplied to Employeror any of its Affiliates by, any of their respective7Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.existing or prospective customers; supplier lists and information about, or provided to Employer or any of its Affiliates by,any of their respective suppliers, vendors or consultants; information regarding the capabilities, duties or compensation ofemployees of Employer or of any its Affiliates; and information regarding the business prospects and opportunities ofEmployer or any of its Affiliates (such as possible acquisitions or dispositions of businesses or facilities). ConfidentialInformation also includes information developed by Executive in the course of Executive’s employment by Employer, aswell as other information to which the Executive may have access in connection with Executive’s employment, and theconfidential information of others with which Employer has a business relationship. Notwithstanding the foregoing,Confidential Information does not include information in the public domain, unless such information entered the publicdomain as a result of a breach of any of Executive’s covenants under Section 8(b). Executive acknowledges and agreesthat Employer has a legitimate business interest in protecting the Confidential Information.(ii)Competing Business. For purposes of this Agreement, the term“Competing Business” shall mean a business conducted anywhere within [the counties of Orange, San Diego, Los Angeles,San Bernardino and Riverside, in the state of California] which is located within forty (40) miles of any office or facilityused by Employer or any of its Affiliates which is competitive with any business which Employer or any of its Affiliatesconducts or proposes to conduct at any time during Executive’s employment with Employer or any of its Affiliates,including, without limitation, the commercial banking business and the investment advisory services business. (b)Confidentiality. (i)Executive understands and agrees that Executive’s employment creates arelationship of confidence and trust between Executive and Employer, including with respect to all ConfidentialInformation, whether such Confidential Information exists on the Employment Commencement Date or is created,developed or acquired or comes into being at any time during the term of this Agreement. Executive covenants and agreesthat, at all times (both during Executive’s employment with Employer and after its expiration or termination for any reason),Executive will keep all Confidential Information in strict confidence and trust and will not disclose any of the ConfidentialInformation to any Person, and Executive covenants and agrees that he will not use any of the Confidential Information forExecutive’s benefit or the benefit of any Person other than Employer and Parent and their Affiliates.(ii)In the event that Executive is requested or required (including by meansof deposition, interrogatories, requests for information or documents in legal proceedings, subpoena, civil investigativedemand or other similar process or by a tribunal, court or regulatory agency, (including, but not limited to the DFI and theFDIC) having applicable jurisdiction, to disclose any of the Confidential Information, Executive shall, unless prohibited bylaw or regulation, provide Employer with prompt written notice of any such request or requirement so that Employer mayseek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Section 8(b) withrespect to such requested or required Confidential Information. If, in the absence of a protective order or other remedyacceptable to Employer or the receipt of a waiver from Employer, Executive is nonetheless legally required to disclose suchConfidential Information to any tribunal, court or government agency to avoid being held liable for contempt or sufferingother censure or penalty, Executive may, without thereby violating this Section 8(b) or incurring any liability to Employerhereunder, disclose only that portion of the Confidential Information that Executive is legally required to disclose. In anycase, Executive shall cooperate with Employer in any8Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.efforts it may undertake to preserve the confidentiality of such Confidential Information, including, without limitation, bycooperating with Employer’s efforts to obtain an appropriate protective order or other reliable assurance that confidentialtreatment will be accorded the Confidential Information.”(c)Documents, Records, etc. All documents, records, data, apparatus, equipment and other physicalproperty, including cell phones and computers, and whether or not pertaining to Confidential Information, which are furnished toExecutive by Employer or which are produced by Executive in connection with Executive’s employment, will be and remain the soleproperty of Employer. Executive will return to Employer all such materials and property as and when requested by Employer or if norequest therefor has theretofore been made, then, immediately upon the expiration or termination of Executive’s employment withEmployer for any reason whatsoever. Executive covenants and agrees that he/she will not retain any such materials or property or anycopies thereof after 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 equalto eighteen (18) months thereafter, he shall not, either on behalf of himself or any other Person, directly or indirectly, solicit or attemptto employ 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,Executive may own up to five percent (5%) of the outstanding capital stock of a publicly traded corporation which constitutes or isaffiliated with a Competing Business, provided that9Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 thecovenants and restrictions set forth, respectively, in Subsections 8(b) through 8(f) above are intended to protect the interests ofEmployer, its Parent and 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 Affiliateswith or among their respective clients, customers, suppliers, vendors, employees and consultants, (ii) acknowledges and agrees that thisSection 8 imposes no greater restraint or restriction on Executive than is reasonably necessary to protect the legitimate business interestsof Employer, Parent and their Affiliates, and such restrictions are reasonable and appropriate for this purpose and will not adverselyaffect Executive’s ability, following a termination of his/her employment with Employer, to earn a livelihood from his/her chosenprofession, and (iii) acknowledges that the consideration received by him pursuant to this Agreement is good, valuable and adequateconsideration in 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 bythe terms of any contract or other agreement (written or oral) with any previous employer or other Person which restricts in any wayExecutive’s use or disclosure of information or Executive’s engagement in any business. Executive further represents and warrants toEmployer that Executive’s execution and delivery of this Agreement, Executive’s employment with Employer and the performance ofExecutive’s duties for Employer pursuant to this Agreement will not violate any obligations, contractual or other, that Executive mayhave to any such previous employer or other Person. In Executive’s work for Employer, Executive will not disclose or make use of anyinformation in violation of any contracts or other agreements (written or oral) with or the rights of any such previous employer or otherPerson, and Executive will not bring to the premises of Employer any copies or other tangible embodiments of nonpublic informationbelonging to or obtained from any such previous employer or other Person.(k)Litigation and Regulatory Cooperation. During and after the Term of this Agreement, Executive shallcooperate fully with Employer, Parent and their Affiliates in the prosecution or defense of any claims or actions or other proceedingswhich has been or may be brought on behalf of or against Employer, Parent or any of their Affiliates which relate to events oroccurrences that transpired while Executive was employed by Employer. Executive’s full cooperation in connection with such claimsor actions shall include, but shall not be limited to, being available to meet with counsel to10Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 thedamages that Employer will sustain as a result of any breach by Executive of any of the Protective Covenants or any of the otheragreements of Executive contained in this Section 8 and that monetary damages, in and of themselves, would not be an adequateremedy for any such breach. Accordingly, Executive agrees that if he/she breaches, or threatens to breach, any of the ProtectiveCovenants or any of the other agreements of Executive contained in this Section 8, Employer shall be entitled, in addition to all otherrights or remedies that it may have under this Agreement or under applicable law, to bring an equitable proceeding in any court ofcompetent jurisdiction and, in any such proceeding, to be awarded (i) temporary, preliminary and permanent injunctive relief to requireExecutive to halt any such breach, or to refrain from committing any threatened breach (as the case may be), of any of such ProtectiveCovenants or other agreements, and (ii) such other appropriate equitable remedies to require Executive to comply with such ProtectiveCovenants and other agreements, without having to show or prove any actual monetary damages to Employer. Employer shall not berequired to post a bond or monetary or other security as a condition to the issuance or continuation of any such injunctive relief or thegranting or continuance of 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 9with respect to equitable proceedings and remedies, any controversy or claim arising out of or relating to this Agreement, theperformance or non-performance (actual or alleged) by either party of any of such party's respective obligations hereunder or anyactual or alleged breach thereof, or otherwise arising out of the Executive’s employment or the termination of that employment(including, without limitation, any claims of unlawful employment discrimination whether based on age or otherwise) shall, to thefullest extent permitted by law, be resolved exclusively by binding arbitration in any forum and form agreed upon by the parties or, inthe absence of such an agreement, under the auspices of the American Arbitration Association (“AAA”) in Orange County, Californiain accordance with the Employment Dispute Resolution Rules of the AAA, including, but not limited to, the rules and proceduresapplicable to the selection of arbitrators. In the event that any Person other than Executive or Employer may be a party with regard toany such controversy or claim, such controversy or claim shall be submitted to arbitration subject to such other Person’s agreementthereto. Judgment upon the award rendered by the arbitrator in any such arbitration proceeding may be entered in any court havingjurisdiction thereof. This Section 9 shall be specifically enforceable. The reasonable fees and disbursements of the prevailing party'slegal counsel, accountants and experts incurred in connection with any such arbitration proceeding shall be paid by the non-prevailingparty in such arbitration proceeding. Notwithstanding anything to the contrary that may be contained in this Section 9, each party shallbe entitled to bring an action in any court of competent jurisdiction for the purpose of obtaining a temporary restraining order or apreliminary or permanent injunction or other equitable remedies in circumstances in which such relief is appropriate.11Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 agreementbetween the parties relating to the subject matter hereof and supersedes all prior agreements, whether written or oral, between the partieswith respect to that subject matter.(b)Assignment; Successors and Assigns, etc. Neither Employer nor Executive may make any assignment,in whole or 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 portionor provision of any section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competentjurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those asto which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shallbe valid and enforceable to the fullest extent permitted by law. Notwithstanding the foregoing, the provisions of Section 8(f), and notthe provisions of this Section 10(c), shall apply to the covenants and other agreements contained in and the provisions of Section 8hereof.(d)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.(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 byregistered or certified mail, postage prepaid, return receipt requested, to Executive at the last address Executive has filed in writing withthe Employer or, in the case of any Notice to be given to Employer, at its main offices, attention of the Chief Executive Officer, andshall be effective on the date of delivery in person or by courier or three (3) days after the date such Notice is mailed by registered orcertified 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-lengthbargaining by the parties, each party was represented by legal counsel of such party's choosing in connection with the negotiation anddrafting of this Agreement and no provision of this Agreement shall be construed against a party, due to an ambiguity therein orotherwise, by reason of 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 limitedpartnership, joint venture, trust, estate or any other entity; (ii) when used with reference to Employer, the term “Affiliate” shall meanany Person that controls, is controlled 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 bedeemed to be exclusive; and (v) the terms "hereof," "herein," "hereinafter," "hereunder," and "hereto," and any similar terms shall12Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 Californiaand shall be construed under and be governed in all respects by and enforced under the laws of the State of California, without givingeffect to the conflict of laws principles of such State.(i)Headings. The Section and paragraph headings in this Agreement are inserted for convenience ofreference only and shall not affect, nor shall be considered in connection with, the construction or application of any of the provisionsof this Agreement.(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 BANKBy: /s/ Scott F. KavanaughName: Scott F.KavanaughTitle: CEOEXECUTIVE/s/ Lindsay LawrenceName: Lindsay Lawrence 13Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 10.11FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (the “First Amendment” or this “Amendment”) is made as ofFebruary 7, 2018 (the “Effective Date”), by and between First Foundation Bank (the “Employer”), a California corporation, andLindsay Lawrence (“Executive”), with reference to the following: RECITALS WHEREAS, Employer and Executive are parties to that certain Employment Agreement dated as of June 1, 2015 (the“Employment Agreement”). WHEREAS, Employer 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 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. AGREEMENT NOW, 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 is hereby amended to read in itsentirety as follows: “The Executive shall serve the Employer as its Executive Vice President and Chief Operating Officer.” 2.Amendment to Section 4. Section 4 of the Employment Agreement is hereby amended to read in its entirety as follows: “Unless sooner terminated pursuant to Section 6 hereof, the term of Executive’s employment with Employer pursuant to thisAgreement commenced on June 1, 2015 and shall end on December 31, 2020 (the “Term”).” 3.Amendment and Restatement of Section 7. Section 7 of the Employment Agreement is hereby amended and restated to readin its entirety as follows: “7.Compensation Upon Termination.(k)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 ExecutiveSource: First Foundation Inc., 10-K, March 01, 2019Powered 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.may have earned under any employee benefit plan of Employer or Parent prior to the expiration or termination of Executive’semployment; provided, however, that notwithstanding the foregoing provisions of this Section 7(a), if Executive’s employment isterminated for Cause pursuant to Section 6(a) above or pursuant to Section 6(f), due to certain Regulatory Actions, then, unlessotherwise required by applicable law, Executive shall not be entitled to receive any unpaid incentive compensation that might otherwisehave been due to Executive. All payments required to be made pursuant to this Section 7(a) shall be made within thirty (30) daysfollowing termination or on such earlier date as is required by applicable law.(l)Termination by the Employer Without Cause or by Executive for Good Reason. In the event of atermination of Executive’s employment by Employer without Cause pursuant to Section 6(b) above, or by Executive for Good Reasonpursuant to Section 6(c) above, then subject to Executive’s execution, delivery and non-revocation within sixty (60) days following thedate of termination of an agreement, that is satisfactory in a form and substance to Employer, releasing any and all legal claims (knownor unknown) Executive may have against Employer or any or its Affiliates, Employer shall provide to Executive the followingtermination benefits (“Termination Benefits”):(i)A severance payment (the “Severance Payment”) in an amount equalto (x) twelve (12) months of Executive’s Base Annual Salary or (y) the aggregate Base Annual Salary that would have beenpaid to Executive for the remainder of the Term of the Agreement if such remaining Term is shorter than theaforementioned 12 month period, as the case may be (the “Termination Benefits Period”); and(ii)continuation during the Termination Benefits Period of group health planbenefits to the extent authorized by and consistent with 29 U.S.C. § 1161 et seq. (commonly known as “COBRA”), subjectto payment of premiums by Executive at the active employee’s rate and solely to the extent that such continuation will notsubject Employer or its Affiliates to any tax or penalty under Section 105(h) of the Internal Revenue Code of 1986, asamended (the “Code”) or the Patient Protection and Affordable Care Act (the “Health Insurance Cost Sharing Benefit”).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 this Section7(b) shall be construed to affect Executive's right to receive COBRA continuation entirely at Executive's own cost to the extent thatExecutive may continue to be entitled to COBRA continuation after the Executive's Health Insurance Cost Sharing Benefit under thisSection 7(b)(ii) ceases. Executive shall be obligated to give prompt notice of the date of commencement of any employment during theTermination Benefits Period and shall respond promptly to any reasonable inquiries concerning any employment in which Executivemay be engaged during the Termination Benefits Period. The Termination Benefits shall be paid by Employer in installments over theTermination Benefits Period in accordance with the customary payroll practices of Employer (net of required deductions andwithholdings); provided, that the first payment shall be made on the next regularly scheduled payroll date following the sixtieth (60th)day after the date of termination and shall include payment of any amounts that would otherwise be due prior thereto.(m)Termination Upon Death. In the event of a termination of Executive’s employment due to death,Employer shall pay to Executive’s estate an amount equal to one hundred percent (100%) of15Source: First Foundation Inc., 10-K, March 01, 2019Powered 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’s Base Annual Salary at the rate in effect immediately prior to such termination (the “Death Benefit”), less the amount of anylife insurance benefits which Executive's estate or any of Executive's beneficiaries receive under any Employer-provided life insuranceplan or program in which Executive was participating at the time of his/her death. Any Death Benefit payable pursuant to this Section7(c) shall be paid in a lump sum payment (net of any tax and any other required withholdings) to the beneficiary designated in writingby Executive, or if no beneficiary was designated, to his/her estate, as soon as is practicable following Executive’s death.(n)Exclusivity of Termination Benefits. Executive shall not be entitled to any payments or benefits due tothe expiration or termination of Executive’s employment with Employer other than those benefits that are expressly provided for in thisSection 7. Without limiting the generality of the foregoing, the Termination Benefits set forth in Section 7(b), together with anyseverance benefits that Executive may be entitled to receive under any separate severance compensation or change of control or stay-pay agreement to which Executive may be a party or any separate severance or stay pay plan in which Executive may be a participant,shall constitute the exclusive rights and remedies against Employer and its Affiliates to which Executive shall be entitled by reason oftermination or Executive’s employment by Employer without Cause or by Executive for Good Reason or for any damages arisingtherefrom.” 4. Addition of Section 11. The following is hereby added as a new Section 11 of the Employment Agreement:“11. Section 409A(a)The parties agree that this Agreement shall be interpreted to comply with or be exemptfrom Section 409A of the Code and the Treasury regulations and guidance promulgated thereunder (collectively “Code Section 409A”),and all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penaltiesunder Code Section 409A. In no event whatsoever will Employer be liable for any additional tax, interest or penalties that may beimposed on Executive under Code Section 409A or any damages for failing to comply with Code Section 409A.(b)A termination of employment shall not be deemed to have occurred for purposes of anyprovision of this Agreement providing for the payment of any amounts or benefits considered “nonqualified deferred compensation”under Code Section 409A upon or following a termination of employment unless such termination is also a “separation from service”within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,”“termination of employment” or like terms shall mean “separation from service.” If Executive is deemed on the date of termination tobe a “specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment or theprovision of any benefit that is considered nonqualified deferred compensation under Code Section 409A payable on account of a“separation from service,” such payment or benefit shall be made or provided at the date which is the earlier of (i) the expiration of thesix (6)-month period measured from the date of such “separation from service” of Executive, and (ii) the date of Executive’s death (the“Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Subsection 11(b)(whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid orreimbursed on the first business day following the expiration of the Delay Period to Executive in a lump sum and any remainingpayments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified forthem herein.(c)With regard to any provision herein that provides for reimbursement of costs andexpenses or in-kind benefits, except as permitted by Code Section 409A, (i) the right to reimbursement or in-kind benefits shall not besubject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits,provided during any taxable year shall not affect the expenses16Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.eligible for reimbursement, or in-kind benefits, to be provided in any other taxable year, and (iii) such payments shall be made on orbefore the last day of Executive’s taxable year following the taxable year in which the expense occurred. For purposes of Code Section409A, Executive’s right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series ofseparate and distinct payments. Whenever a payment under this Agreement specifies a payment period with reference to a number ofdays (e.g., “payment shall be made within thirty (30) days following the date of termination”), the actual date of payment within thespecified period shall be within the sole discretion of Employer.”5. Except as otherwise provided herein, capitalized terms used in this Amendment shall have the definitions set forth in theEmployment Agreement.6.Except as expressly modified hereby, all terms, conditions and provisions of the Employment Agreement shall continue in fullforce and effect.IN WITNESS WHEREOF, this Agreement has been executed by Employer and by Executive as of the Effective Date. EMPLOYER:FIRST FOUNDATION BANKBy: /s/ Scott KavanaughName: Scott KavanaughTitle: Chief Executive Officer EXECUTIVE: By: /s/ Lindsay LawrenceName: Lindsay Lawrence 17Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 10.16 CHANGE OF CONTROL SEVERANCE COMPENSATION AGREEMENTThis CHANGE OF CONTROL SEVERANCE COMPENSATION AGREEMENT, dated as of June 1, 2015 (the“Agreement”), is made by and between First Foundation Inc., a California corporation (the “Company”) and Lindsay Lawrence (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 cause theSubsidiary to pay, to Executive if his/her employment with the Company or First Foundation Bank (the “Subsidiary”), as the case maybe, terminates under one of the circumstances described herein following a Change in Control of the Company or the Subsidiary.C.Executive is employed as an Executive Vice President, Director of Depository Services under an ExecutiveEmployment Agreement dated June 1, 2015 herewith (the “Employment Agreement”). This Change of Control SeveranceCompensation Agreement sets forth the rights and obligations of the Company and Executive in the event of a termination ofExecutive’s employment, for Good Reason (as defined below), that is attributable to, or that occurs concurrently with or within 24months following, a Change in Control. On the other hand, the Employment Agreement, rather than this Agreement, governs anddetermines the 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 1:1.1The terms “affiliate” and “associate” shall have the respective meanings given to such terms in Rule12b-2 under the Exchange Act (even if the Company has no securities registered under that Act).1.2The terms “beneficial ownership,” “beneficially owned” and “beneficial owner” shall have themeanings given to such terms in Rule 13d-3 under the Exchange Act (even if the Company has no securities registered under that Act).1.3The term “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.1.4The term “Parent” of a corporation or other entity means any person that is the beneficial owner,directly or indirectly, of a majority of the Voting Securities of that corporation or other entity. Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.1.5The term “Voting Securities” of any person that is a corporation means the combined voting power ofthat person’s then outstanding securities having the right to vote in an election of that person’s directors. The term “Voting Securities”of any person, other than a corporation, such as a partnership or limited liability company, shall mean the combined voting power ofthat person’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.1.6The 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.1.7The 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 Subsidiary. The term“person also shall include any natural person, any corporation, limited liability company, general or limited partnership, joint venture,trust, estate, or unincorporated association. 1.8The 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 timebecome the beneficial owner, directly or indirectly, of more than twenty-five percent (25%) of the Company’s Voting SecuritiesCompany, except (i) the Company or any of its subsidiaries, (ii) any trustee, fiduciary or other person or entity holding securities underany employee benefit plan or trust of the Company or any of its subsidiaries or (iii) Ulrich E. Keller, Jr. (collectively, the ExemptOwners”); or(b)There shall be consummated any consolidation, merger, or reorganization (as such term isdefined in the California Corporations Code), of the Company with or into another person, or of another person with or into theCompany, in which the holders of the Company’s outstanding Voting Securities immediately prior to the consummation of suchconsolidation, merger or reorganization would not, immediately after such consummation, own beneficially, directly or indirectly, (inthe aggregate) at least sixty percent (60%) of the Voting Securities of (i) the continuing or surviving person in such merger,consolidation or reorganization (whether or not that is the Company) or (ii) the ultimate Parent, if any, of that continuing or survivingperson; or(c)There shall be consummated any consolidation, merger or reorganization of the Subsidiarywith or into another person, or of another person with or into the Subsidiary, unless the persons that were the holders of the Company’sVoting Securities immediately prior to such consummation would have, immediately after such consolidation, merger or reorganization,substantially the same proportionate direct or indirect beneficial ownership of at least sixty (60%) of the Voting Securities of (i) thecontinuing or surviving person in such consolidation, merger or reorganization (whether or not that is the Subsidiary) or, (ii) theultimate Parent, if any, of that continuing or surviving person; or(d)There shall be consummated any sale, lease, exchange or other transfer (in one transaction ora series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company orof the Subsidiary; or2 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 holders of the Voting Securities of the Company approve any plan or proposal for theliquidation or dissolution of the Company, unless the plan of liquidation provides for all or substantially all of the assets of theCompany to be transferred to a person in which the holders of the Company’s Voting Securities immediately prior to such liquidationhave or will have, immediately after such liquidation, substantially the same proportionate direct or indirect beneficial ownership of atleast 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, individualswho at the beginning of that two year period constituted the entire Board of Directors 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, a "Change in Control" shall not be deemed to have occurred within the meaning ofParagraph 1.8(a) above solely as the result of any acquisition of Voting Securities by the Company or any subsidiary thereof that hasthe effect of (i) reducing the number of the Company’s outstanding Voting Securities, or (ii) 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 orby any Pre-September 1, 2007 Shareholder; provided, however, that, if any such person (other than any of the Exempt Owners, asdefined above) shall thereafter become the direct or indirect beneficial owner of any additional Voting Securities of the Company (otherthan 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.1.9The term “Employer” means whichever of the Company or Subsidiary is the principal employer ofExecutive.1.10The term “Code” means the Internal Revenue Code of 1986, as amended, and any successor statutethereto.2.Term. The term of this Agreement shall commence on the date hereof and, subject to earlier termination pursuantto Section 6 hereof, shall end three (3) years following the date on which notice of non‑renewal or termination of this Agreement isgiven by 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 Subsidiary, and(ii) the Executive’s employment by the Company or the Subsidiary terminates under any of the circumstances or for any of the reasonsset forth in Section 4 below. 4.Termination by Executive for Good Reason. If (i) a Change in Control of the Company occurs while the Executiveis still employed as an officer of the Company or the Subsidiary 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 atthe time or within 12 months of the consummation of such Change in Control, then, Executive shall be entitled to the3 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.compensation provided in Section 5 of this Agreement, provided that he gives the Company written notice of the termination of his/heremployment and of all positions he/she may have with the Company and the Subsidiary for “Good Reason” within forty-five (45) daysfollowing the occurrence of any such Good Reason Event. 4.1Reduction 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 Subsidiary, or both, that constitutes or would generally be considered to constitute a demotion of Executive, unless suchreduction, diminution or change is made as a consequence of (i) Executive’ disability (determined as provided in Section 6(e) of theEmployment Agreement), or (ii) any acts or omissions of Executive which would entitle the Company or Subsidiary to terminateExecutive’s employment for Cause (as defined in Section 6(a) of the Employment Agreement); or4.2Reduction in Base Salary. Executive's Base Annual Salary (as defined in his Employment Agreementand as in effect immediately prior to the consummation of the Change in Control) is reduced, unless such reduction is made (i) as partof an across-the-board cost cutting measure that is applied equally or proportionately to all senior executives of the Employer, or (ii) asa result 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);4.3Discontinuance or Reduction of Bonus Opportunity Under Bonus Compensation Plan. Executive'sbonus and/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;4.4Discontinuance of Participation in Employee Benefit Plans. Executive's participation in any otherbenefit plan maintained by the Company or Employer in which Executive was participating immediately prior to the consummation ofthe Change of Control (including any vacation program) is terminated or the benefits that had been afforded under any such benefitplan are significantly reduced, unless such discontinuance or reduction (as the case may be) is (i) expressly permitted by the terms ofthat plan or program, or (ii) due to a change in applicable law or the loss or reduction in the tax deductibility to Employer of thecontributions to or payments made under such plan, or (iii) the result of a policy of Employer or the Company that is applied equally orproportionately to all senior executives participating in such benefit plan, or (iv) the result of the adoption of one or more other benefitplans providing reasonably comparable benefits (in terms of value) to Executive; or4.5Relocation. The relocation of Executive to an office that located more than thirty (30) miles fromExecutive’s principal office location prior to the consummation of the Change of Control or to an office that is not the headquartersoffice of Executive’s employer (other than for temporary assignments or required travel in connection with the performance byExecutive of his/her duties for Employer or the Company); or4 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.4.6Breach of Agreements. A breach by the Company or Employer of any of its material obligations toExecutive under the Employment Agreement or this Agreement which continues uncured for a period of thirty (30) days followingwritten notice thereof 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:5.1Change of Control Severance Compensation. Subject to Section 5.4 below, in lieu of any further salaryand bonus 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 GoodReason Termination; and(b)Employer also shall pay to Executive, at the applicable time set forth in Section 5.3, anamount equal to 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 amount equal to the Maximum Bonus Award (as hereinafter defined) payable to Executive under any incentive or bonuscompensation plan in which he/she was participating at the time of such termination of employment, which amount shall be paid asprovided in Section 5.3 hereof. For purposes hereof, the term “Maximum Bonus Award” shall mean the amount of the bonuscompensation that would be paid to Executive under such incentive or bonus compensation plan assuming that all performance goals ortargets required to have been achieved as a condition of the payment of the maximum bonus under such plan were achieved and allother conditions precedent to the payment of such bonus compensation were satisfied. (c)All options to purchase stock of the Company granted to the Executive that had not vestedas of the date 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-basedcompensation awards granted to the Executive, which had not vested as of the date of such Good Reason Termination, shall vesteffective immediately prior to such termination.(e)The Company or the Subsidiary shall maintain in full force and effect, during the periodcommencing on the date of such Good Reason Termination and ending on the December 31 of the second calendar year following thecalendar year in which such termination occurred (the “Benefit Continuation Period”), all employee medical, dental and vision plansand programs, disability plans and programs and all life insurance programs in which the Executive and/or his/her family memberswere entitled to participate or under which they were entitled to receive benefits immediately prior to the date of the occurrence of theGood Reason Event, provided, however, that if such continued participation is prohibited under the general terms and provisions ofsuch plans and programs, then, the Company or the Subsidiary shall, at its expense, arrange for substantially equivalent benefits to beprovided to Executive and/or his/her family members during the Benefit Continuation Period. Notwithstanding the foregoing, however,there shall only be included as benefits to which Executive and/or his/her family members shall be entitled under this Paragraph 5.1(e),and Executive and/or such family members shall only be entitled to, those benefits if the plans or programs in which Executive orhis/her family members were participating immediately prior to the occurrence of the Good Reason Event were exempt from the term“nonqualified deferred compensation plan” under Section 409A of the Code.5 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 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 5.1.5.2Timing and Manner of Payment. The amount that becomes payable to Executive pursuant to Section5.1(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, 2015, 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, 2015); 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.5.3No Requirement of Mitigation. The Executive shall not be required to mitigate the amount of anypayment or benefit provided for in this Section 5 by seeking other employment or otherwise, nor shall any compensation or otherpayments received by the Executive from other persons after the date of termination reduce any payments due under this Section 5.5.4Limitation.(a)Anything in this Agreement to the contrary notwithstanding, if any compensation, payment,benefit or distribution by the Company or Employer Subsidiary to or for the benefit of Executive, whether paid or payable or distributedor distributable pursuant to the terms of this Agreement or otherwise (collectively, the "Severance Payments"), would be subject to theexcise tax imposed by Section 4999 of the Code, then, the following provisions shall apply:(i)If the Threshold Amount (as hereinafter defined) is less than (x) the SeverancePayments, but greater than (y) the Severance Payments reduced by the-sum of (A) the Excise Tax (as defined below) and (B) the totalof the Federal, state, and local income and employment taxes on the amount of the Severance Payments which are in excess of theThreshold Amount, then the Severance Payments that would otherwise be payable under this Agreement shall be reduced (but notbelow zero) to the extent necessary so that the maximum Severance Payments shall not exceed the Threshold Amount. To the extentthat there is more than one method of reducing the Severance Payments to bring them within the Threshold Amount, Executive shalldetermine which method shall be followed; provided that if Executive fails to make such determination within 45 days after theCompany has sent Executive written notice of the need for such reduction, the Company may determine the amount of such reductionin its sole discretion.(ii)If, however, the Severance Payments, reduced by the sum of (A) the Excise Taxand (B) the total of the Federal, state and local income and employment taxes payable by Executive on the amount of the SeverancePayments which are in excess of the Threshold Amount, are greater than or equal to the Threshold Amount, there shall be no reductionin the Severance Payments to Executive pursuant to Paragraph 5.4(a)(i) above.6 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.(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) less onedollar ($1.00); and the term "Excise Tax" shall mean the excise tax imposed by Section 4999 of the Code, and any interest or penaltiesincurred 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 Executiveshall be made by Vavrinek, Trine, Day & Co., LLP, independent registered public accountants, or any other independent accountingfirm selected 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.5.5Withholding. Notwithstanding anything to the contrary that may be contained elsewhere in thisAgreement, all payments made to Executive under this Agreement shall be made net of all taxes and other amounts required to bewithheld from the wages 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 inthis Section 6.6.1Termination of Employment Other Than for Good Reason. This Agreement shall terminate upon thehappening, at any time prior to the termination of Executive’s employment for Good Reason pursuant to Section 4 hereof, of any of thefollowing events: (a)Executive’s Disability or Death. This Agreement shall terminate upon the termination ofExecutive’s employment as a result of Executive’s disability pursuant to and in accordance with Section 6(e) of the EmploymentAgreement. This Agreement also shall terminate immediately in the event of the death of the Executive. (b)Retirement. This Agreement shall terminate automatically on Retirement (as hereinafterdefined) of Executive. The term “Retirement” as used in this Agreement shall mean termination by the Company or the Executive ofExecutive’s employment based on the Executive’s having reached age 75 or such other age as shall have been fixed in anyarrangement established with the Executive’s consent with respect to Executive retirement.(c)Cause. This Agreement shall terminate, if Executive’s employment with the Company or anEmployer Subsidiary 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 anyvoluntary termination by Executive of his/her employment with the Company or the Subsidiary, as the case may be, other than pursuantto Section 4 of this Agreement.7 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 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 Subsidiary 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.6.2Effect of Good Reason Termination on Term of this Agreement. In the event of a Good ReasonTermination pursuant to Section 4 hereof, Executive shall have no further rights or remedies under this Agreement, except his/her rightto receive the severance compensation set forth in Section 5 hereof attributable to the occurrence of the Good Reason Event that entitledExecutive to terminate his/her employment pursuant to Section 4 hereof. Accordingly, but without limiting the generality of theforegoing, Executive shall be entitled to receive any compensation under this Agreement in the event of the occurrence of a secondChange in Control of the Company 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 ofthe Company 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 Subsidiary (as the case may be) under Section 5hereof, none of the Company, the Subsidiary or any of their affiliates shall have any obligation or liability of any kind or naturewhatsoever to Executive by reason of or arising out of his/her employment with the Company or the Subsidiary or the terminationthereof. Executive further agrees that, except for his/her rights and the obligations of the Company or the Subsidiary (as the case maybe) under Section 5 hereof, all demands, claims and causes of action that Executive may have against, and any and all rights thatExecutive may have to recover any payments, damages, liabilities or other amounts of any kind or nature whatsoever from, theCompany, the Subsidiary or any of their affiliates , or any of their respective, officers, directors, shareholders, employees, agents orindependent contractors (the “Company Related Parties”), shall be forever released by Executive as a condition precedent toExecutive’s rights to receive and the obligations of the Company or Subsidiary (as the case may be) to pay or provide to Executive theseverance compensation and benefits provided for in Section 5 hereof, irrespective of whether or not such demands, claims, causes ofaction or rights arise or have arisen under (i) this Agreement, the Employment Agreement, or any other contract, agreement orunderstanding, written or oral, between Executive and the Company or any of the Company Related Parties, or (ii) any employee orexecutive benefit plans or programs, including any stock incentive or stock based compensation plans, or (iii) any federal, state or localstatutes or government regulations, or otherwise, and whether or not such demands, claims, causes of action or rights are known orunknown, certain or uncertain, or suspected or unsuspected by Executive. Executive further covenants and agrees that such conditionprecedent shall not be satisfied unless and until he/she executes and delivers to the Company all appropriate written agreementsreflecting such settlement and complete release in a form reasonably acceptable to the Company.8.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 to8 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.arbitration subject to such other person’s agreement thereto. Judgment upon the award rendered by the arbitrator in any sucharbitration proceeding may be entered in any court having jurisdiction thereof. This Section 8 shall be specifically enforceable. Thereasonable fees and disbursements of the prevailing party's legal counsel, accountants and experts incurred in connection with any sucharbitration proceeding shall be paid by the non-prevailing party in such arbitration proceeding. Notwithstanding anything to thecontrary that may be contained in this Section 9, however, each party shall be entitled to bring an action in any court of competentjurisdiction for the purpose of obtaining a temporary restraining order or a preliminary or permanent injunction or other equitableremedies in circumstances in which such relief is appropriate.9.Miscellaneous. 9.1Entire Agreement. This Agreement constitutes the entire agreement between the parties relating to thesubject matter hereof and supersedes all prior agreements and understandings, whether written or oral, between the parties with respectto that subject matter.9.2Assignment; Successors and Assigns, etc. Neither party may make any assignment, in whole or in part,of this Agreement or any interest herein, by operation of law or otherwise, or delegate any of their respective duties hereunder, withoutthe prior written consent of the other party; except that in the event of a Change in Control of the Company, the rights and obligationsof the Company under this Agreement may be assigned to the successor-in-interest of the Company in such Change in Control withoutthe consent 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.9.3Severability. 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. 9.4Waiver. 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.9.5Notices. 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 of9 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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.delivery in person or by courier or two (2) business days after the date such Notice is mailed by registered or certified mail, postageprepaid and return receipt requested (whether or not the requested receipt is returned).9.6Amendment. 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.9.7Interpretation and Construction of this Agreement. This Agreement is the result of arms-lengthbargaining by the parties, each party was represented by legal counsel of such party's choosing in connection with the negotiation anddrafting of this Agreement and no provision of this Agreement shall be construed against a party, due to an ambiguity therein orotherwise, by reason of 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 deemedto be exclusive; 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. 9.8Governing Law. This Agreement is being entered into and will be performed in the State of Californiaand shall be construed under and be governed in all respects by and enforced under the laws of the State of California, without givingeffect to its conflict of laws rules or principles.9.9Headings. The Section and paragraph headings in this Agreement are inserted for convenience ofreference only and shall not affect, nor shall be considered in connection with, the construction or application of any of the provisionsof this Agreement.9.10Counterparts. This Agreement may be executed in any number of counterparts, and each suchexecuted counterpart, 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. [Remainder of page intentionally left blank.Signatures of parties follow on next page.]10 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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”First Foundation Inc.By:/s/ Scott Kavanaugh/s/ Lindsay LawrenceName:Scott F. KavanaughName: Lindsay LawrenceTitle:CEO “Subsidiary”First Foundation BankBy:/s/ Scott KavanaughName:Scott F. KavanaughTitle:CEO 11 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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’sPercentageOwnership First 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, 2018. Source: First Foundation Inc., 10-K, March 01, 2019Powered 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 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File Nos. 333-193658 and 333-207638) and Registration Statement on Form S-3 (File No. 333-214928) of First Foundation, Inc. and Subsidiaries of our report datedMarch 1, 2019, with respect to the consolidated financial statements and the effectiveness of internal control over financial reporting onForm 10-K of First Foundation, Inc. and Subsidiaries as of and for the year ended December 31, 2018. /s/ Vavrinek, Trine, Day & Co., LLP Laguna Hills, CaliforniaMarch 1, 2019 Source: First Foundation Inc., 10-K, March 01, 2019Powered 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, 2018;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; and5.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 are reasonablylikely 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 internal controlover financial reporting.Dated: March 1, 2019 /s/ SCOTT F. KAVANAUGHScott F. KavanaughChief Executive Officer Source: First Foundation Inc., 10-K, March 01, 2019Powered 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, 2018;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; and5.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 are reasonablylikely 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 internal controlover financial reporting.Dated: March 1, 2019 /s/ John M. MichelJohn M. MichelExecutive Vice Presidentand Chief Financial Officer Source: First Foundation Inc., 10-K, March 01, 2019Powered 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, 2018In connection with the accompanying Annual Report on Form 10-K of First Foundation Inc. (the “Company”), for the year ended December 31, 2018,as filed with the Securities and Exchange Commission as of the date hereof (the “Annual Report”), I, Scott F. Kavanaugh, Chief Executive 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 of theCompany. Date: March 1, 2019 /s/ Scott F. Kavanaugh Scott F. Kavanaugh Chief Executive Officer A signed original of this written statement required by Section 906 has beenprovided to First Foundation Inc. and will be retained by First FoundationInc. and furnished to the Securities and Exchange Commission or its staffupon request. Source: First Foundation Inc., 10-K, March 01, 2019Powered 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, 2018In connection with the accompanying Annual Report on Form 10-K of First Foundation Inc. (the “Company”), for the year ended December 31, 2018,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 of theCompany. Date: March 1, 2019 /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 FoundationInc. and furnished to the Securities and Exchange Commission or its staffupon request. Source: First Foundation Inc., 10-K, March 01, 2019Powered 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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