Release Date: January 30, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- First Foundation Inc (FFWM, Financial) successfully executed a $489 million multifamily loan securitization at a premium price, indicating strong demand and effective portfolio management.
- The company reported a modest improvement in net interest margin, increasing from 1.5% in the third quarter to 1.58% in the fourth quarter.
- First Foundation Inc (FFWM) is actively working to diversify its loan portfolio and reduce commercial real estate concentration, which is expected to improve its risk profile and financial performance.
- The Wealth and Trust business continues to be a stable source of fee income, with consistent performance in the fourth quarter.
- The company is investing in strengthening its platforms and recommitting to integrated client support, which is expected to enhance future growth opportunities.
Negative Points
- First Foundation Inc (FFWM) recorded $17.1 million in net charge-offs, with $13.4 million attributable to three long-standing commercial relationships, indicating challenges in credit risk management.
- The company experienced a decline in loan interest income due to a reduction in loan balances, impacting overall financial performance.
- Provision for credit losses was significantly higher this quarter, reflecting ongoing challenges in managing credit risk.
- Noninterest expenses increased, driven by higher compensation and benefits expenses, impacting overall profitability.
- The tangible book value per common share declined, ending the quarter at $11.68 per share, down from the previous quarter.
Q & A Highlights
Q: Can you provide background on the commercial charge-offs and whether they were previously on nonaccrual? Was this part of a portfolio review since you became CEO?
A: Thomas Shafer, CEO: The charge-offs were related to credits that had been monitored closely for some time. Upon reviewing high-risk assets, it was determined that there was a change in performance significant enough to warrant charging them off. This was not a sudden decision but an appropriate step at this time.
Q: How do you plan to manage customer service-related deposit balances, especially with the potential sale of more multifamily loans?
A: James Britton, CFO: We value our customer service-related deposit business but recognize the need to reduce concentration in certain relationships. We will balance the reduction of brokered CDs with other high-cost deposits, including customer service costs, while maintaining client support. This will be a focus as we transition our balance sheet.
Q: With the spike in compensation expenses this quarter, what can we expect for the first quarter?
A: James Britton, CFO: The fourth quarter included year-end bonuses for nonexecutive team members, which will not recur in the first quarter. We are focused on expense management and expect expenses to be lower in the first quarter, though the trajectory will depend on revenue growth and strategic initiatives.
Q: How do you view the balance sheet strategy and opportunities to accelerate changes?
A: Thomas Shafer, CEO: I am reviewing our methodologies and standards to ensure they are appropriate for our scale. We aim to reposition the balance sheet and remix credit portfolios with robust risk management practices to support sustainable growth, regardless of interest rate or economic conditions.
Q: What is the outlook for the remaining loans held-for-sale portfolio, and how do you plan to fund the maturing brokered CDs?
A: James Britton, CFO: We expect to make progress on the held-for-sale portfolio and are investing in deposit growth through new commercial bankers and digital banking initiatives. We anticipate reductions in the loans held-for-sale portfolio and growth in core deposits to bridge the funding gap as brokered CDs mature.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
