First Foundation Inc ((FFWM)) has held its Q2 earnings call. Read on for the main highlights of the call.
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The recent earnings call for First Foundation Inc. presented a mixed sentiment, highlighting both strategic advancements and significant challenges. While the company made notable progress in reducing its commercial real estate (CRE) concentration and achieving growth in digital banking deposits, these positives were overshadowed by a substantial net loss, unfavorable loan transaction impacts, and notable management turnover.
Reduction in CRE Concentration
First Foundation Inc. successfully reduced its commercial real estate (CRE) concentration to 365% of regulatory capital, down from over 600%. This was achieved through the sale of $377 million in CRE loans and the securitization of an additional $481 million, marking a significant strategic move to optimize the company’s balance sheet.
Improvement in Digital Banking Deposits
The company’s digital banking deposits surpassed $1 billion for the first time since its launch, now representing 12% of total deposits as of June 30. This milestone underscores the growing importance and success of First Foundation’s digital banking initiatives.
Stable Credit Quality
Despite the challenges faced, First Foundation maintained stable credit quality with nonperforming loans at 35 basis points and low net charge-offs of $135,000. This stability is a positive indicator of the company’s risk management practices.
Capital and Liquidity Position
The company remains well-capitalized, boasting a common equity Tier 1 ratio of 11.1% and a Tier 1 leverage ratio of 8.3%. These figures reflect a strong capital and liquidity position, providing a buffer against potential financial uncertainties.
Net Loss in Second Quarter
First Foundation reported a net loss of $7.7 million in the second quarter, a significant decline from a positive net income of $6.9 million in the first quarter. This loss highlights the financial challenges the company is currently navigating.
Loss from Loan Transactions
The execution of the April loan sale was less favorable than anticipated, impacting pretax income by $11.8 million. This outcome underscores the complexities and risks associated with loan transactions.
Higher Cost Deposits and Expenses
Despite efforts to reduce costs, First Foundation continues to grapple with higher cost deposits and elevated professional services expenses, which are affecting its overall financial performance.
Turnover in Management
The company experienced significant management turnover, including the departures of the Chief Operating Officer and Chief Credit Officer. These changes in leadership could impact the company’s strategic direction and operational stability.
Forward-Looking Guidance
Looking ahead, First Foundation aims to optimize its balance sheet further by exiting the held-for-sale CRE portfolio by the end of 2025. The company expects a net interest margin of 1.8% to 1.9% by the end of the year. Despite the recent net loss, the bank’s core financial performance remains strong, with adjusted pre-provision net revenue of $3.6 million and a modest core after-tax net income of $1 million.
In summary, First Foundation Inc.’s earnings call revealed a complex financial landscape, with strategic successes in CRE concentration reduction and digital banking growth juxtaposed against a backdrop of financial losses and management changes. As the company navigates these challenges, its focus on optimizing its balance sheet and maintaining stable credit quality will be crucial for future success.