Executive Summary

Q3 2019 delivered higher revenues and EPS on strong banking activity and a $4.2M gain on sale from a $551M multifamily loan securitization; total revenues were $57.1M (+4% YoY) and diluted EPS $0.39 (+18% YoY) .
Net interest margin was 2.89% (up vs Q2’s 2.84%), with management guiding to a flat NIM in Q4 and targeting ~3% next year as funding costs decline and customer-service deposit balances seasonally roll off .
Banking pre-tax income rose meaningfully QoQ on higher net interest income, lower provision, and higher noninterest income (gain on sale, loan fees); noninterest expense benefited from a one-time $1.2M FDIC insurance refund .
Deposits grew $638M YTD and originations remained robust ($486M 3Q, diversified with 31% commercial); tangible book rose to $11.35 per share .
Consensus estimates from S&P Global were unavailable at time of request; result-to-estimate comparisons could not be assessed.

What Went Well and What Went Wrong

What Went Well

Strong consolidated performance: “We experienced another strong quarter… earnings $17.4 million or $0.39 a share” with total revenues $57M and efficiency ratio 59.5% . Management highlighted completing its fourth securitization ($551M loans; $4.2M gain) as part of a multi-year strategic plan to expand lending while maintaining credit quality .
Balanced growth engines: Loan originations $486M, deposits +$638M YTD, AUM +$309M YTD, Trust AUM +$97M YTD with trust fees up 35% YoY YTD, underpinning noninterest income diversification .
Margin/funding setup improving: Overall cost of interest-bearing liabilities decreased to 1.91% in Q3 (from 1.94% in Q2) as short-term rates fell; management expects further funding cost relief and NIM to approach 3% next year .

What Went Wrong

Seasonal and mix headwinds: Customer service costs rose QoQ (+$1.6M) on higher related deposit balances, partially offset by lower earnings credit rates; management expects balances to decline 20–30% from peak in Q4 but average balances fall less intra-quarter .
Modest NIM still below 3%: Despite sequential improvement, NIM of 2.89% remains below 2018 levels (3.12% in Q3 2018), with securitization and securities remix pressuring reported NIM mix in the near term .
Nonperforming assets ticked up: NPA ratio rose to 0.33% (from 0.25% in Q2), driven by two legacy relationships; management emphasized strong collateral and de minimis pipeline of troubled assets .

Financial Results

Metric	Q3 2018	Q1 2019	Q2 2019	Q3 2019
Total Revenues ($USD Millions)	$54.8 (Net interest income + noninterest income)	$49.5	$51.0	$57.1
Net Interest Income ($USD Millions)	$43.726	$41.047	$41.887	$43.132
Noninterest Income ($USD Millions)	$11.104	$8.465	$9.131	$13.982
Diluted EPS ($)	$0.33	$0.25	$0.28	$0.39
Net Interest Margin (%)	3.12%	2.88%	2.84%	2.89%
Efficiency Ratio (%)	61.9%	66.7%	63.5%	59.5%
Return on Avg Assets (%)	1.02%	0.76%	0.81%	1.10%
Return on Avg Equity (%)	11.2%	8.0%	8.6%	11.7%

Segment breakdown (Income before taxes):

Segment ($USD Millions)	Q3 2018	Q1 2019	Q2 2019	Q3 2019
Banking	$21.801	$16.929	$18.425	$24.890
Wealth Management	$1.071	$0.213	$0.415	$0.738
Other & Eliminations	$(2.018)	$(1.115)	$(1.335)	$(1.380)

KPIs and balance metrics:

KPI	Q1 2019	Q2 2019	Q3 2019
Loan Originations ($USD Millions)	$399.9	$493.6	$485.8
Deposits (End-of-period, $USD Millions)	$4,568.7	$4,743.9	$5,170.6
Loan-to-Deposit Ratio (%)	108.3%	110.7%	94.3%
Nonperforming Assets / Total Assets (%)	0.27%	0.25%	0.33%
Tangible Book Value per Share ($)	$10.52	$10.94	$11.35

Estimates vs. actuals:

Metric	Q3 2019 Consensus	Actual	Beat/Miss
EPS ($)	N/A (S&P Global unavailable)	$0.39	N/A
Total Revenues ($USD Millions)	N/A (S&P Global unavailable)	$57.1	N/A

Note: Consensus estimates were unavailable from S&P Global at time of request.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Interest Margin (reported)	Q4 2019	n/a	“Flat” vs Q3; bottom-line benefits shift via lower customer-service costs rather than NIM	Maintained/Flat
Securities Portfolio Yield	Next few quarters	n/a	~3% weighted average yield	New detail
Customer Service Costs	Q4 2019	n/a	Expect decline as balances fall ~20–30% intra-quarter; average balances decline less; additional relief if Fed cuts	Lowered
Funding Costs	Q4 2019–2020	n/a	Overall cost of interest-bearing liabilities trending down; expect further decreases with rate environment	Lowered
Securitization Volume	2020	n/a	Planning around ~$500M of loans held for sale; may be slightly more depending on originations	New programmatic indication
Dividend	Ongoing	n/a	Declared $0.05 in Q3 2019 (no forward guidance provided)	Maintained payout in quarter

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2 2019)	Current Period (Q3 2019)	Trend
NIM trajectory (ex-LHFS and reported)	NIM 2.88%; ex-LHFS ~3.02% in Q1 ; NIM 2.84%; ex-LHFS ~2.97% in Q2	Reported NIM 2.89%; guide “flat” Q4; target ~3% next year	Stabilizing; improving in 2020
Funding costs and deposits	Deposit rates rising in 1H; customer service costs increased; deposit cost 1.40% Q2	Cost of interest-bearing liabilities down to 1.91%; expect further relief as rates decline; specialty deposit balances to seasonally decline	Easing funding pressure
Loan origination mix and yields	Q2 originations $494M with 43% C&I; yields ~4.76%	Q3 originations $486M; 31% commercial; weighted avg rate 4.44% (mf ~4%; C&I ~5.15%)	Robust demand; diversified; yields slightly lower
Securitization cadence and securities remix	Entered swaps in late 2018 anticipating 3Q19 sale; NIM ex-LHFS used for clarity	Completed $551M sale; $4.2M gain; sold $284M lower-yielding securities (2.09%) and purchased $576M at 2.46%; one-year FHLB locked at 1.77%	Repeatable tool; spreads attractive
Credit quality	NPA 0.27% (Q1) and 0.25% (Q2); net charge-offs low	NPA 0.33%; issues concentrated in two well-secured legacy relationships; net recoveries in quarter	Still strong; slight uptick
CECL readiness	Noted modeling work forthcoming [—]	Refining new acquired modeling; assess impact later in year	Preparedness improving
Wealth/Trust momentum	AUM up $156M (Q1), $301M YTD (Q2); Trust AUM +$34M (Q1), +$82M (Q2)	AUM +$309M YTD; Trust AUM +$97M YTD; Trust fees +35% YTD	Continued growth

Management Commentary

“We experienced another strong quarter… loan sale and securitization of $551 million of multifamily loans… sale of $284 million of lower yielding securities… purchase of $576 million of securities from the securitization. I’m very pleased with our ability to complete this fourth securitization, a tool which we intend to continue to utilize going forward.” — CEO Scott Kavanaugh .
“Consistent with prior quarters we continue to diversify our originations… 31% of our originations coming from commercial lending… weighted average interest rate on our originations that is higher than the interest rate of our current overall loan portfolio.” — President David DePillo .
“Our overall cost of interest-bearing liabilities decreased to 1.91%… we started to realize the benefits of decreasing short-term interest rates.” — CFO John Michel .
“We expect another strong quarter [Q4]… pipelines continue to be strong… holding fairly judiciously on our rates.” — President David DePillo .

Q&A Highlights

Margin outlook: Securities portfolio expected to yield ~3%; NIM flat in Q4 as seasonal runoff shifts benefits to bottom line; NIM path to ~3% seen in 2020 .
Customer service costs: Expect ~20–30% end-of-quarter balance reduction; average balances decline less intra-quarter; potential dual benefit if Fed eases further .
Originations pipeline: Management expects a strong Q4 with continued commercial demand; some year-end funding may slip into January .
Liquidity and FHLB advance: Locked one-year funding at 1.77% amid market anomaly; on-balance liquidity near 18–20% with intent to maintain ~14–15% .
Credit/NPA clarification: NPA increase tied to two legacy relationships (cash-secured line in litigation; land-secured low LTV); REO at zero; pipeline of troubled assets immaterial .
FDIC credit: $1.2M small-bank credit taken in Q3 represents the entire expected credit, no carryover .

Estimates Context

S&P Global consensus EPS and revenue estimates for Q3 2019 were unavailable due to access limitations at time of request; therefore, beat/miss vs. Street cannot be determined.
Given management’s commentary and sequential improvement in NIM and pre-tax income, estimate revisions for Q4 and FY could reflect lower funding costs and stable NIM trajectory, but exact consensus adjustments cannot be quantified without S&P Global data.

Key Takeaways for Investors

Securitization capability is a recurring strategic tool supporting loan growth and balance sheet optimization; the Q3 execution and attractive spread environment underpin 2020 cadence (~$500M planned) .
Funding-cost relief is underway; as specialty deposit balances seasonally decline and rates ease, bottom-line leverage should improve even if reported NIM is flat short-term .
Diversified originations with growing commercial mix sustain demand and support portfolio yield, while credit quality remains strong despite a slight NPA uptick concentrated in well-secured legacy loans .
Noninterest income drivers (gain on sale, trust fees, servicing fees) provide earnings resilience; one-time FDIC refund aided Q3 expenses but will not recur .
Tangible book value per share continues to compound ($11.35, +3.8% QoQ), offering valuation support as earnings momentum improves .
Near-term trading: Expect focus on Q4 NIM stability, specialty deposit runoff dynamics, and any incremental Fed moves impacting funding costs; securitization spreads remain a positive catalyst .
Medium-term thesis: Operating efficiency trending better, funding backdrop easing, and recurring securitizations should support earnings growth and ROE improvement into 2020 .

Notes on Non-GAAP metrics

Management uses non-GAAP measures (efficiency ratio, tangible common equity, tangible book value, NIM excluding loans held for sale), with reconciliations and definitions provided in the press releases .

First Foundation Inc. (FFWM)·Q3 2019 Earnings Summary