- Net Income: $3.1 million or $0.05 per share for both basic and diluted shares.
- Tangible Book Value: Increased by $0.08 from the first quarter to $16.43.
- Pretax Pre-Provision Revenue: $1.9 million compared to $460,000 in the prior quarter.
- Interest Income: $150.9 million, relatively unchanged from $150.4 million in the first quarter.
- Non-Interest Income: 23% of total revenue, down from 25% in the first quarter.
- Net Interest Margin: 1.36%, up from 1.17% in the first quarter.
- Non-Interest Expense: $55.6 million, up from $50.6 million in the prior quarter.
- Efficiency Ratio: Improved to 96.1% from 98.4% in the first quarter.
- Adjusted Return on Assets: Increased to 0.10% from 0.03% as of March 31, 2024.
- Loan-to-Deposit Ratio: Improved to 93.8% from 94.8% as of March 31, 2024.
- Total Deposits: $10.8 billion, up from $10.6 billion in the first quarter.
- Core Non-Brokered Deposits: 62%, down from 64% in the first quarter.
- Non-Interest Bearing Demand Deposits: Increased to 20% from 17% of total deposits as of March 31, 2024.
- Insured and Collateralized Deposits: 85% of total deposits, unchanged from the first quarter.
- Liquidity Position: $4.4 billion.
- Borrowings: Flat at $1.7 billion as of June 30.
- Average Borrowings Outstanding: Down to $1.4 billion or 10.4% of total average assets.
- Non-Performing Assets to Total Assets: 0.18%, unchanged quarter-over-quarter.
- Loan Balances: $10.1 billion, flat from the first quarter.
- Loan Yields: Increased to 4.77% from 4.70% in the first quarter.
- First Foundation Advisors Assets Under Management: $5.5 billion, unchanged from the end of the first quarter.
- Assets Under Advisement at FFB's Trust Department: $1.1 billion, down from $1.2 billion as of March 31, 2023.
Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- First Foundation Inc (FFWM, Financial) reported net income attributable to common shareholders of $3.1 million or $0.05 per share for both basic and diluted shares.
- The company successfully completed a $228 million capital raise to support growth, not due to regulatory concerns.
- Loan yields increased to 4.77% in the second quarter from 4.70% in the first quarter.
- First Foundation Advisors closed the quarter with near-record assets under management at $5.5 billion.
- The company's net interest margin improved to 1.36% from 1.17% in the first quarter of 2024.
Negative Points
- Non-interest expense increased to $55.6 million in the quarter compared to $50.6 million in the prior quarter.
- The efficiency ratio, although improved, remains high at 96.1% compared to 98.4% in the first quarter of 2024.
- Core non-brokered deposits decreased to 62% during the quarter, compared to 64% in the first quarter of 2024.
- Non-interest income as a percentage of total revenue decreased to 23% for the quarter compared to 25% for the first quarter.
- The company continues to face pressure on interest-bearing liability costs, which increased slightly from 4.24% in the first quarter to 4.27% in the second quarter.
Q & A Highlights
Q: You mentioned the potential for securitization as a near-term opportunity. Could you elaborate on the size and market appetite for such transactions?
A: (Christopher Naghibi, COO) Typically, Freddie Mac allows up to $500 million for securitizations. We aim for the maximum size for efficiency. We have had inquiries from other financial institutions and reverse inquiries, so we are confident in testing the market for the best execution route.
Q: How do you prioritize the use of excess liquidity from potential securitizations?
A: (James Britton, CFO) Our first priority would be to reduce wholesale funding, particularly higher-cost brokered CDs. We aim to maintain a balance sheet that supports investments in high-quality liquid securities to enhance earnings.
Q: Can you elaborate on your growth strategy in newer geographies like Texas and Florida?
A: (Christopher Naghibi, COO) We plan to grow significantly in Texas and Florida, leveraging our existing presence and focusing on relationship-based business. We also see potential in California, particularly Northern and Southern regions, where we have strong client relationships.
Q: What is the timeline for achieving your profitability targets?
A: (Scott Kavanaugh, CEO) We are targeting the end of 2026 to achieve our profitability goals, including an ROA of 90-100 basis points and ROTCE of 10-12%.
Q: What asset size do you anticipate by the end of 2026?
A: (James Britton, CFO) We estimate an asset size in the range of $12.5 billion to $13 billion, but this could be higher depending on market opportunities and growth in new markets.
Q: How will the review of your allowance methodology impact your financials?
A: (Christopher Naghibi, COO) We aim to complete the review this quarter. The goal is to align our reserves with peers, addressing any market risks. This will likely result in an increase in our reserve levels.
Q: What are your plans for aligning incentives and goals within the organization?
A: (Christopher Naghibi, COO) We plan to align compensation and incentives with our strategic goals, ensuring that employees are motivated to bring in both deposits and loans, driving overall profitability.
Q: How will the recent capital raise impact your profitability targets?
A: (Scott Kavanaugh, CEO) The capital raise significantly enhances our ability to achieve our profitability targets. Without it, our growth would have been much more muted, likely cutting our potential in half.
Q: What is the timeline for the shareholder vote on the capital raise?
A: (Scott Kavanaugh, CEO) The shareholder vote is scheduled for September. The proxy statement should be going out soon.
Q: What are your expectations for customer service costs in the fourth quarter?
A: (James Britton, CFO) We expect normal seasonal declines in the fourth quarter, consistent with historical trends, but slightly lower than last year due to specific client actions in 2023.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
