First Foundation’s Earnings Call Reveals Mixed Results

First Foundation Inc ((FFWM)) has held its Q4 earnings call. Read on for the main highlights of the call.

The recent earnings call for First Foundation Inc. painted a mixed picture of the company’s performance. On a positive note, the firm successfully executed a multifamily loan securitization and saw an improvement in net interest margin. The wealth and trust segment provided stable income, contributing to the positive sentiment. However, challenges arose from increased credit loss provisions, higher non-interest expenses, and a notable first loss in the multifamily portfolio, creating a balance between progress and hurdles.

Successful Multifamily Loan Securitization

First Foundation Inc. celebrated a significant achievement with the execution of a $489 million multifamily loan securitization in early December. The loans were sold at a price above 95, which was a premium compared to the portfolio’s marks at the end of both the third and fourth quarters, highlighting effective financial strategy.

Net Interest Margin Improvement

The company reported an increase in net interest margin from 1.5% in the third quarter to 1.58% in the fourth quarter. This marks a 41 basis point improvement from the year’s low point in the first quarter, indicating a positive trend in First Foundation’s financial health.

Wealth and Trust Business Stability

The wealth and trust business continued to be a stable source of fee income during the fourth quarter. This segment’s consistent performance contributed to the company’s overall financial stability amidst other challenges.

Reduction in Interest Bearing Liability Costs

Interest-bearing liability costs decreased to 4.05%, benefiting from the Federal Reserve’s rate cuts. This was 19 basis points below the third quarter’s 4.24%, demonstrating effective cost management.

Increased Provision for Credit Losses

First Foundation faced a significant increase in the provision for credit losses due to $17.1 million in net charge-offs. These were primarily from three longstanding commercial relationships, highlighting a challenge in managing credit risk.

Higher Non-Interest Expenses

Non-interest expenses rose by $7.9 million, mainly driven by increased compensation, benefits expenses, and year-end awards for non-executive officers, impacting the company’s overall cost structure.

Decline in Loan Interest Income

The company experienced a reduction in loan balances, which contributed to lower loan interest income for the quarter, reflecting challenges in maintaining loan growth.

First Loss in Multifamily Portfolio

For the first time, First Foundation recorded a loss in its multifamily portfolio, amounting to $657,000 due to a property in the San Francisco market, marking a notable setback in this sector.

Forward-Looking Guidance

Looking ahead, First Foundation plans to focus on diversifying its loan portfolio, reducing commercial real estate concentration, and expanding its wealth and trust business as stable sources of fee income. The company aims to further reduce the $1.4 billion in multifamily loans held for sale on the balance sheet, reflecting a strategic shift towards a more resilient financial structure.

In conclusion, while First Foundation Inc. demonstrated areas of financial progress, such as in loan securitization and margin improvements, it also faced significant challenges like increased credit loss provisions and higher expenses. The company’s forward-looking strategies to diversify and stabilize income sources are crucial steps in addressing these issues and ensuring future financial health.