FFWM

Balance Sheet Actions

• Executed sales and securitizations of held-for-sale CRE loans, reducing commercial real estate concentration from over 600% to 365% of regulatory capital and paying down $975 million of higher cost deposits.

Earnings Performance

• Posted a net loss of $7.7 million in Q2, but core financial performance was stronger than headline; adjusted core after-tax net income was $1 million or $0.01 per share.

Strategic Initiatives

• Focus on reducing commercial real estate concentration and growing C&I loans; progress in private banking expansion with referrals and new wealth management clients; efforts to recruit new leadership for key roles.

Financial Metrics

• Reiterated NIM guidance of 1.8% to 1.9% by end of 2025; common equity Tier 1 ratio at 11.1% and Tier 1 leverage ratio at 8.3%, improved ~140 basis points since Q3 last year.

NIM Outlook

• Reiterate NIM guidance of 1.8% to 1.9% by end of 2025; expect margin expansion, with NIM expected to be 2.1% to 2.2% by Q4 2026 if Fed cuts rates more than anticipated.

Portfolio Exit

• Expect to be fully out of the held-for-sale commercial real estate portfolio by the end of 2025.

Fee Income

• Anticipate positive medium-term growth trends in core fee income while focusing on limiting incremental expense growth.

During the second quarter, First Foundation sold $377 million of held-for-sale CRE loans in April and securitized $481 million of held-for-sale CRE loans in June, reducing commercial real estate concentration. C&I loans saw $256 million of new loan balances funded in the quarter, priced at an average yield of 7.18% (approximately 80% of new loans). Digital banking deposits surpassed $1 billion for the first time, representing 12% of total deposits. Total deposit costs fell to 2.95%.

• Volatility associated with held-for-sale CRE loans.
• Dependence on successful execution of securitizations and balance sheet transitions.
• Impact of management changes and talent recruitment on executing strategic initiatives.

Q: You guys have been really active optimizing the balance sheet and working through some of these initiatives. You did a little bit more than I was thinking you were going to get done this quarter, which is great. As you've gone through a large majority of the HFS loans, have you found anything else that you'd like to optimize and maybe sell quicker or maybe increase the size of that securitization? Just kind of curious how you think about that given you guys have been ahead of schedule perhaps?

A: Yes. So David, thanks for the question. I think about the makeup of the balance sheet, we're obviously focused on reducing our CRE concentration. We actually like the asset class. We just had too much of it on the balance sheet. So once we begin to head towards the end of the year, I think we're going to be in a position where we can stabilize that focus on making sure that we're driving earning assets onto the balance sheet, focused on EPS and our funding costs. So I think that really, this is the portfolio that we're focused on and also want to get rid of just the volatility of the held-for-sale asset class.

Q: Okay. Okay. So there's nothing else to accelerate there. It's kind of more just focusing on the strategic initiatives after this last tranche?

A: Yes, that's right.

Q: A bit of a follow-up, maybe to David's first question. The balance sheet is down a little over $2 billion from the peak in terms of total assets. Obviously, a little more in the way of sales back half of this year. As you think about the time deposit maturities that continue over the course of next year, where is your line of sight in terms of where you think the balance sheet bottoms and kind of timing? Is that fourth quarter this year and roughly kind of ballpark on total assets?

A: Gary, thanks for the question. I think the end of the year is a good target for the trough on the balance sheet. I think you may see a little bit more contraction in the third before we start to build up into the end of the year and going into '26. One of our focuses during the transition is on maintaining earning assets. And so to the extent that we can do that with attractively priced securities, we will if we -- of course, we prefer loan opportunities. So we're pursuing that aggressively. But I would say the end of the year is a good trough for assets. I wouldn't expect us to contract much from here in the third, maybe a little before growing into the fourth again. And then I think coming out of 2025 with a restructured balance sheet complete and some new leadership in place and ideally, a track of some new hires in client-facing roles will have a lot of momentum going into '26.

Q: I wanted to ask about the recent turnover among the management ranks, the CBO, COO, and it sounds like now the Chief Credit Officer. Just what's driving this? And what's your plan to fill those roles?

A: Sure. Thanks for the question, Matthew. The -- as I said in my prepared comments, turnover and change is expected when you're making the level of changes to the operating model that we are. We've gone from being known for the multifamily. We're bringing that down significantly. I think appropriately. We're spending a lot of time on the deposit side of the balance sheet. And while we appreciate the effort and energy and the impact that our former leaders had on the company, the skills that we need for the next chapter are a little different and the experience of the leaders, some of these leaders for the next chapter is different. And so the -- I think the turnover reflects some planned turnover and just a little bit of turnover that's caused by rate of change. And all good people, but it creates -- that churn creates opportunity for us to accelerate some of the changes that might have been in the works. And I can tell you this that the people that Simone and I have spent most of the time on the recruitment process. The level of talent that wants to come to Southern California is staggering, great organizations, extraordinarily developed people, and we're thrilled with the engagement that we've had.

Q: And the other one for me, just on the ECR deposits and your plans to potentially reduce that amount further? Just trying to get a sense for whether or not you're going to deliberately run off more of those ECR deposits and what magnitude over what period of time and how we should think about the related rate?

A: I'll let Jamie help me with this, but I'd say that it's really high cost. So it's -- there's nothing necessarily wrong with the deposits. It's just again, scale that we had in cost. So as a funding mechanism, it's a large pool that many banks have. But we're focused on replacing high-cost, high concentrated deposit with more granular lower cost. And that's a journey, but everything we can do to address the high-cost categories we're focused on.

Q: Most of mine have been addressed already, but a quick one on the margin, Jamie, just obviously, like a lot of moving pieces throughout the second quarter from a loan yield perspective. And I know you guys gave some color on the deposit front in terms of exit costs. So I'm hoping you could help out a little bit with kind of the loan portfolio and just holding any future rate cuts aside, like where did loan yields exit the quarter at? I'm just trying to ask some help getting to the 4Q margin?

A: Sure. Total loan yields exited just under 4.70%, Andrew.

Q: And that was at the end of the quarter?

A: Correct. And that does include the multifamily loans, which are -- so the multifamily portfolio overall is just under $4 million at this point. And so not a meaningful portion anymore, but that does include the final $500 million of held-for-sale loans from multifamily.

Q: And then on the cash position still right around 9% or 10% of assets. You call out the kind of schedule of brokered deposit maturity. And I think expectations are clear about some of the higher cost ECR deposits, but some of the brokered is also a little bit higher cost. And just curious on like one, comfortability with the cash position. Could we see you manage that lower going into 2026? And is that kind of earmarked for broker deposit reduction? Or I guess, you also gave some comments about maintaining earning asset base and maybe investing in some securities. I guess how do we think about the puts and takes there as it relates to the cash position?

A: Yes. It's obviously a lot -- there's obviously a lot of moving parts on the balance sheet. We're comfortable right now with the level of liquidity. That will, of course, fluctuate through the quarter due to the timing of different moves, especially when you're moving off such large pieces of the asset portfolio. So that it may tick up for a period during the quarter. The $1 billion level is where we're comfortable today. I think as we move forward, however, with the balance sheet transition complete with a large focus on the highly concentrated high-cost deposits and broker deposits coming down meaningfully since their peaks. I think we'll be able to reassess coming out of the end of 2025 and determine where is a reasonable level going into '26. But I would expect the cash position to remain relatively stable on an average basis for the rest of the year.